Calculate the weighted average cost

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Reference no: EM133056617

Problem: Webster Company has compiled the information shown in the following table.

Source of capital

Book Value

Market value

After-tax cost

Long-term debt

$4,000,000

$3,840,000

6.0%

Preferred stock

40,000

60,000

13.0

Common stock equity

1,060,000

3,000,000

17.0

Totals

$5,100,000

$6,900,000

 

  1. Calculate the weighted average cost of capital using book value weights.
  2. Calculate the weighted average cost of capital using market value weights.
  3. Compare the answers obtained in parts a and b. Explain the differences.

Reference no: EM133056617

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