Question
Webster Company has compiled the information shown in the following information below: Long-Term Debt: Book value $4,000,000 Market value $3,920,000 After-tax cost 7% Preferred stock:
Webster Company has compiled the information shown in the following information below:
Long-Term Debt: Book value $4,000,000 Market value $3,920,000 After-tax cost 7%
Preferred stock: Book value $40,000 Market value $63,000 After-tax cost 11%
Common stock equity: Book value $1,060,000 Market value $5,162,000 After-tax cost 17%
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.
Source of Capital
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Essentials Of Managerial Accounting
Authors: Kurt Heisinger
1st Edition
0618436693, 978-0618436699
