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

Type of Capital                  Book Value         MarketValu       e After-Tax Cost

Long-term debt                $3,000,000           $2,800,0004.8%

Preferred stock                                102,000                 150,0009.0%

Common stock                  1,108,000             2,500,00013.0%

$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).

Answer rating: 100% (QA)

Solution a 1 Book value weights are computed as follows Type of Capital Book Value ... View the full answer