Question
WACCBook weights and market weights: Webster Company has compiled the information shown in the following table: Source of capital Book value Market value After-tax cost
WACCBook weights and market weights: Webster Company has compiled the information shown in the following table:
| Source of capital | Book value | Market value | After-tax cost |
| |||
| Long-term debt | $4,000,000 | $3,840,000 | 6% | ||||
| Preferred stock | 40,000 | 60,000 | 13% | ||||
| Common stock equity | 1,060,000 | 3,000,000 | 17% | ||||
| Totals | $5,100,000 | $6,900,000 | |||||
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.
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Housing Policy And Finance
Authors: John Black, David Stafford
1st Edition
0415004195, 978-0415004190
