A relatively young firm has capital components valued at book and market and market component costs as follows. No new securities have been issued since the firm was originally capitalized.

Values

Component	Market	Book	Cost
Debt	$42,830	$40,000	8.5%
Preferred Stock	$10,650	$10,000	10.6%
Common Equity	$65,740	$32,000	25.3%

a. Calculate the firm's capital structures and WACCs based on both book and market values, and

compare the two.

b. What appears to have happened to interest rates since the company was started?

c. Does the firm seem to be successful? Why?

d. What would be the implication of using a WACC based on book as opposed to market values? In

other words, what kinds of mistakes might management make by using the book values?