Reference no: EM132506572
WACC - Book Weights and Market
JB Entertainment, Inc.'s capital structure is as follows.
Source Book Value Market Value After-tax Cost
Long-term debt $5,000,000 $4,500,000 5.2%
Preferred stock $100,000 $120,000 11.0%
Common stock $4,900,000 $7,000,000 14.0%
Totals $10,000,000 $11,620,000
Question a. Calculate JBE's weighted-average-cost-of-capital using book value weights.
Question b. Calculate JBE's weighted-average-cost-of-capital using market value weights.
Question c. Compare your answers in parts A and B. Explain the differences.