P9-14 (similar to)

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WACCBook

weights and market weightsWebster Company has compiled the information shown in the following table:

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.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.

a.The firm's weighted average cost of capital using book value weights is nothing%. (Round to two decimal places.)

DATA TABLE:

(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)

Source of capital	Book value		Market value		After-tax cost
Long-term debt	$4,000,000		$4,040,000		7%
Preferred stock	40,000		58,000		12%
Common stock equity	1,060,000		4,728,000		14%
Totals	$5,100,000		$8,826,000