CHAPTER 17 SHAREHOLDER TYPE OF FINANCING BOOK VALUE ($ MILLION) MARKET VALUE ($ MILLION) BEFORE TAX COST Long-term debt 10 7.5 9 Secured debt 5 5.0 7 Paid-up capital 15 17.5 15 30 30.0 Parasols is in a 30 per cent tax bracket and has a target debt/equity ratio of 100 per cent. It wants to keep its short-term debt at about half of its long-term debt (in market value terms). a. Calculate the weighted average cost of capital for Parasols using (i) book value weights, market value weights and (iii) target weights. b. Explain the difference in the results obtained in part (a). What are the correct weights to use in the weighted average cost of capital