Weighted average cost of capital
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Source of Capital Book Value Market Value After-tax cost
Long-term debt $4,000,000 $3,840,000 6.0%
Preferred stock 40,000 60,000 13.0%
Common stock equity 1,060,000 3,000,000 17.0%
Totals $5,100,000 $6,900,000
1. Calculate the weighted average cost of capital using book value weights.
2. Calculate the weighted average cost of capital using market value weights.
3. Compare the answers obtained in parts a and b. Explain the differences.
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Solution Summary
This discusses the computation of weighted average cost of capital
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Source of Capital Book Value Market Value After-tax cost
Long-term debt $4,000,000 $3,840,000 ...
Purchase this Solution
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