WAcc-Book weights and market weights weester Company has compled the information
ID: 2618228 • Letter: W
Question
WAcc-Book weights and market weights weester Company has compled the information shown in the ollowing table . Calculate the weighted average cost of captal using book value weights e. Compare tne answers obtained in parts a and b Explain the Sfarences a. The firms weighted average cost ofcapital usngtook value wegtsis?% (Round to two de mal places ? b. The trs weighted average cost of Capta, usng market value weight" D% Round to two de mal places ) e, Compare the answers otained in perts a andb Explain the ferences (Seect he best answer below OA The market alue approach yialds a higher cost of capital because the oosts of the components of the capital structure are calculated using the prevaling market prices Since the common stock is selling at a higher velue than its book value the cos he weighbed average cost of using market value weights of captal is much higher when using the market value wegh capnal s much lower when using tre maket value weigh The book value acoroad' yeas of capeal is much higher when using the book ae weignts ?C. righer cost of capta' because me costs of ne components ofthe caonai mactur aro caiaated using ??? prevaang market prices the common stock is seang af ? Ower vwue than ts market wave ne cost OD. The book alue approach yidsaloer cost of capital because the costs of the components of the captal structure are of captal is much higher when using the book alue weights Data Table Cick on the icon located on the top-right comner of the data table below in order t ts contents into a spreadsheet 5,000 3,244,000 5,100,000 7,339000 Click to select your answens Common stock equity 1060,000Explanation / Answer
1.
Using book value weights
WACC=(4000000*7%+40000*11%+1060000*16%)/(4000000+40000+1060000)=8.902%
2.
Using market value weights
WACC=(4040000*7%+55000*11%+3244000*16%)/(4040000+55000+3244000)=11.0082%
3.
Option A
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