Question
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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The Evolution Of Nordic Finance
Authors: Steffen Elkiær Andersen
2011th Edition
0230241557, 978-0230241558
