WACC-Book weights and market weights Webster Company has compiled the information shown in the following table: 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. - a. The firm's weighted average cost of capital using book value weights is %. (Round to two decimal places.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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WACC-Book weights and market weights Webster Company has compiled the information shown in the following table:
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.
a. The firm's weighted average cost of capital using book value weights is
%. (Round to two decimal places.)
Transcribed Image Text:WACC-Book weights and market weights Webster Company has compiled the information shown in the following table: 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. a. The firm's weighted average cost of capital using book value weights is %. (Round to two decimal places.)
ed
Data table
(Click on the icon here in order to copy the contents of the data table below
into a spreadsheet.)
Source of capital
Long-term debt
Preferred stock
Common stock equity
Totals
Book value
$4,000,000
40,000
1,060,000
$5,100,000
Print
Market value
$3,840,000
65,000
4,123,000
$8,028,000
Done
After-tax cost
9%
13%
16%
X
Transcribed Image Text:ed Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Source of capital Long-term debt Preferred stock Common stock equity Totals Book value $4,000,000 40,000 1,060,000 $5,100,000 Print Market value $3,840,000 65,000 4,123,000 $8,028,000 Done After-tax cost 9% 13% 16% X
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