Webster Company has compiled the following information as shown below: (All in $1,000)

Source of Capital Book Value Market Value After-tax cost

Long-term Debt $4000 $3,800 6%

Preferred Equity $100 100 13%

Common Equity $1,060 $3000 18%

Total Value $5100 $6900

Required

a. Calculate the 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 a and b, Explain the differences