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kld-311758509squestionld-1&flushed; false&cd-34; @fttps//www.m https//www.mathxl.com/Student/PlayerHomework aspx?homewor Homework: HW 8 (Based on Chapter 9) Exercise Score: 0 of i pt Assagnment Score: 70% (7 of 10 pts WACC-Book weights and market weights Webster Company has compiled the information shown in the Webster Company has compled the nformation shown n the folning table t following table a. Cakulate the weighted average cost of capital sing book value weight b. Calculate the weighted average cost of capital using market value weights c. Compare the answers obeained in parts a and b Explain the differences . The fixn's weighted average cost of capital unsing bocok vabe weights isRound to two decimal places) Data Table (Cick on the icon located on the to copy its contents ino a spreadsheet) Seurce of capisal Market value After-tax cest Long term debt $4000,000 Preferred stock $4,080000 58,000 2714,000 $6,852,000 11% 17% 40,000 Common stock equity 1,060,000 Totals $5,100,000 $6 Print Done Enter your answer the aner box, then dick Checknswe

Explanation / Answer

Source of Capital Book Value $ Market Value$ % Book Value Weight % Market Value Weight After Tax cost Wtd Average cost (Book value weights)= %Book value wieght*After Tax cost Wtd Average cost (Market value weights)= %Market value wieght*After Tax cost Remarks Long Term Debt         4,000,000                 4,080,000                 0.784                   0.595 7% 5.49% 4.17% % weight is leass in market value than book value so weighted cost on market value basis is less Preferred Stock               40,000                       58,000                 0.008                   0.008 11% 0.09% 0.09% % weights and costs are same for both book value and market value basis Common Stock         1,060,000                 2,714,000                 0.208                   0.396 17% 3.53% 6.73% % weight is leass in book value than market value so weighted cost on book value basis is less Total         5,100,000                 6,852,000                 1.000                   1.000 9.11% 10.99%                          -   Firms Weighted average cost using book value is 9.11% Firms Weighted average cost using market value is 10.99%

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