WACCBook weights and market weightsWebster 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		$4,200,000		6%
Preferred stock	40,000		60,000		12%
Common stock equity	1,060,000		5,056,000		18%
Totals	$5,100,000		$9,316,000

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.