WACC- Book weights and market weights: Webster Company has compiled the information shown in the following...

 

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WACC- Book weights and market weights: Webster Company has compiled the information shown in the following table. Book value Market value After tax cost Source of capital Long term debt 3,840,000 5.30% 4,000,000 40,000 Preferred Stock 60,000 13 Common stock equity 1,060,000 3,000,000 17 Totals 5,100,000 6,900,000 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 answer obtained in parts a & b. Explain the differences. WACC- Book weights and market weights: Webster Company has compiled the information shown in the following table. Book value Market value After tax cost Source of capital Long term debt 3,840,000 5.30% 4,000,000 40,000 Preferred Stock 60,000 13 Common stock equity 1,060,000 3,000,000 17 Totals 5,100,000 6,900,000 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 answer obtained in parts a & b. Explain the differences.

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Weighted average cost of capital WACC is calculated by summing the proportions of each method of fin... View the full answer