WACC- -Book weights and market weights

Webster Company has compiled the information shown in the

following table:

Data table

Click on the icon here , in order to copy the contents of the data table below nto a spreadsheet.)

Source of capital Book value Market value After tax cost

Long-term debt $4,000,000 $4,080,000 6%

Preferred stock $40,000 $56,000 11%

Common stock equity $1,060,000 $3,964,000 14%

Totals $5,100,000 $8,100,000

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.