Compute the weighted average cost of capital using book, Ask an Expert

Management Studies

Webster Company has compiled the information given in 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

a. Compute the weighted average cost of capital using book value weights.

b. Compute the weighted average cost of capital using market value weights.

c. Compare the answers acquired in parts a and b. Describe the differences

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M9308308

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