Webster Company has compiled the information shown in the following table: Source of Capital Book Value Market Value After-Tax Cost Long-Term Debt $4,000,000 $4,200,000 8% Preferred Stock $40,000 $56,000 13% Common Stock Equity $1,060,000 $4,282,000 18% Totals $5,100,000 $8,538,000 A. Calculate the weighted average cost of capital using book value weights. _____%? B. Caclulate the weighted average cost of capital using market value weights. _____%? C. Compare the answers obtained in parts a and b. Explain the differences.
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Webster Company has compiled the information shown in the following table:
| Source of Capital | Book Value | Market Value | After-Tax Cost |
| Long-Term Debt | $4,000,000 | $4,200,000 | 8% |
| $40,000 | $56,000 | 13% | |
| Common Stock Equity | $1,060,000 | $4,282,000 | 18% |
| Totals | $5,100,000 | $8,538,000 |
A. Calculate the weighted average cost of capital using book value weights. _____%?
B. Caclulate 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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