PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 19, Problem 6PS
WACC Table 19.3 shows a book balance sheet for the Wishing Well Motel chain. The company’s long-term debt is secured by its real estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 10% interest on the bank debt and 9% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $90 per share. The expected return on Wishing Well’s common stock is 18%.
Calculate Wishing Well’s WACC. Assume that the book and market values of Wishing Well’s debt are the same. The marginal tax rate is 21%.
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The table below shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its real
estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 15% interest on the bank debt and 13%
interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $90 per share. The expected return
on Wishing Well's common stock is 19%. (Table figures in $ millions.)
Cash and marketable securities
Accounts receivable
Inventory
Current assets
Real estate
Other assets
Total
$
Weighted-average cost of capital
$ 90
250
50
$ 390
%
2,200
100
2,690
Bank loan
Accounts payable
Current liabilities
Long-term debt
Equity
Total
$ 350
150
$ 500
Calculate Wishing Well's WACC. Assume that the book and market values of Wishing Well's debt are the same. The marginal tax rate is
21%.
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.
1,790
400
$ 2,690
The table below shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its real
estate assets, but it also uses short-term bank loans as a permanent source of financing. It pays 13% interest on the bank debt and 11%
interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $85 per share. The expected return on
Wishing Well's common stock is 18%. (Table figures in $ millions.)
$ 130
$
270
Bank loan
Cash and marketable securities
170
Accounts payable
Accounts receivable
290
$
440
Inventory
Current liabilities
50
$
2,400
470
Current assets
Long-term debt
Equity
2,150
Real estate
400
120
Other assets
$ 2,990
$ 2,990
Total
Total
Calculate Wishing Well's WACC. Assume that the book and market values of Wishing Well's debt are the same. The marginal tax rate is
21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Weighted-average cost of capital
Binomial Tree Farm's financing includes $5 million of bank loans. Its common equity is shown in Binomial's Annual Report at $6.67
million. It has 500,000 shares of common stock outstanding, which trade on the Wichita Stock Exchange at $18 per share. What debt
ratio should Binomial use to calculate its company cost of capital or asset beta?
Note: Enter your answer as a percent rounded to 2 decimal places.
Debt ratio
%
Chapter 19 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 19.A - The U.S. government has settled a dispute with...Ch. 19.A - You are considering a five-year lease of office...Ch. 19 - WACC True or false? Use of the WACC formula...Ch. 19 - WACC The WACC formula seems to imply that debt is...Ch. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - WACC Whispering Pines Inc. is all-equity-financed....Ch. 19 - WACC Table 19.3 shows a book balance sheet for the...Ch. 19 - WACC Table 19.4 shows a simplified balance sheet...Ch. 19 - Prob. 8PS
Ch. 19 - WACC Nevada Hydro is 40% debt-financed and has a...Ch. 19 - Flow-to-equity valuation What is meant by the...Ch. 19 - APV True or false? The APV method a. Starts with a...Ch. 19 - APV A project costs 1 million and has a base-case...Ch. 19 - APV Consider a project lasting one year only. The...Ch. 19 - APV Digital Organics (DO) has the opportunity to...Ch. 19 - Prob. 17PSCh. 19 - Prob. 18PSCh. 19 - Prob. 19PSCh. 19 - Prob. 20PSCh. 19 - Prob. 22PSCh. 19 - Company valuation Chiara Companys management has...Ch. 19 - Prob. 26PSCh. 19 - Prob. 27PS
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