WACClong dashBook

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

LOADING...

.

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 andb.

Explain the differences.

sourec capital	book value	market value	after tax cost
long term debt	$4,000,000	$3,840,000	8%
preferred stock	$40,000	54,000	13%
common stock	1,060,000	3,466,000	16%
total	$5,100,000	$7,360,000

a.The firm's weighted average cost of capital using book value weights is

nothing%.

(Round to two decimal places.)