(Answered) Wacc book weights and market weights webster company has

Engineering

WACC: Book weights and market weights 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

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

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

c. Compare the answers obtained in parts a and b. Explain the differences.

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