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Webster Company has compiled the information shown in the following table: LOADING.... Source of capital Book value Market value After-tax cost Long-term debt $4,000,000 $3,920,000

Webster Company has compiled the information shown in the following table: LOADING....

Source of capital

Book value

Market value

After-tax cost

Long-term debt

$4,000,000

$3,920,000

8%

Preferred stock

40,000

63,000

11%

Common stock equity

1,060,000

5,077,000

14%

Totals

$5,100,000

$9,060,000

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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