Calculate the weighted average cost of capital using 1 book

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Weighted Average Cost of Capital. Valie Enterprises, Inc., has compiled the following investments:

Type of Capital

Book Value

Market Value

After-Tax Cost

Long-term debt

$3,000,000

$2,800,000

4.8%

Preferred stock

102,000

150,000

9.0%

Common stock

1,108,000

2,500,000

13.0%


$4,210,000

$5,450,000


(a) Calculate the weighted average cost of capital, using (1) book value weights and (2) market value weights. (b) Explain the difference in the results obtained in (a).

Reference no: EM13573782

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