Question: QUESTION 3 (20 marks) Webster Company Ltd has compiled the following information. Source of capital Book value Market Value After tax Cost Long-term debt $
QUESTION 3 (20 marks)
Webster Company Ltd has compiled the following information.
| Source of capital | Book value | Market Value | After tax Cost |
| Long-term debt | $ 4,000,000 | $3,840,000 | 6.0% |
| Preference share capital | 40,000 | 60,000 | 13% |
| Ordinary share equity | 1,060,000 | 3,000,000 | 17% |
| Totals | $5,100,000 | 6,900,000 |
|
- Calculate the WACC (to the nearest two decimal places) using book value weights. (9 marks)
- Calculate the WACC (to the nearest two decimal places) using market value weights. (9 marks)
- Compare the answers obtained in parts a and b. Explain the differences. (2 marks)
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