Calculate the WACC using book value weights

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Reference no: EM131794642

Question: Webster Company has compiled the information shown in the following?

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	Book Value	Market Value	After tax cost
Long-term debt	$4,000,000	$4,120,000	0.07%
Preferred stock	$40,000	$62,000	0.11%
Common stock equity	$1,060,000	$4,484,000	0.15%
Totals	$5,100,000	$8,666,000

Reference no: EM131794642

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