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    Calculating WACC in the given case

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    Webster Company has compiled the information show in the following table.

    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

    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 answers obtained in parts A and B. Explain the differences.

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    https://brainmass.com/economics/personal-finance-savings/calculating-wacc-in-the-given-case-408237

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    Please refer attached file for the better clarity of tables.

    A. Calculate the weighted average cost of capital using book-value weights.
    Source of Capital Book Value Weight=Fraction of total value
    Long-Term Debt $4,000,000 4000000/5100000=0.7843
    Preferred Stock 40,000 40000/5100000=0.0078
    Common Stock Equity 1,060,000 1060000/5100000=0.2078
    Totals $5,100,000

    After tax cost of Long-term debt=rd=6.0%
    After tax ...

    Solution Summary

    Solution determines the WACC values using market value and book value weights.

    $2.19

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