Do Homework - Cristian Clementi - Google Chrome Secure | https://www.mathxl.com

Question

Do Homework - Cristian Clementi - Google Chrome Secure | https://www.mathxl.com yerHomework.aspx?homeworkId=448 577574&questionld; = 1 &flushed; = false&cld-4704237;&centerwin; =yes FIN-350-MWF1230A-Fundamentals of Business Financs Cristian Clementi 12/4/17 1:34 PM Homework: Module 7: Chapter 9 Score: 0 of 5 pts P9-14 (similar to) Save 6 of 8 (0 complete HW Score: 0%, 0 of 40 pts Question Help WACC Book weights and market weights Webster Company has compiled the intormation shown in the following table 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 a. Thefirm's weighted average cost of capital using book vaue weights is %. Round to two decimal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) ce of capital Book value Market value After-tax cost $4,000,000 40,000 3,930,000 61,000 4,155,000 $8,176,000 6% 12% 1696 Long-term debt Preferred stock Common stock equity 1,060,000 Totals $5,100,000 Print Done Enter your answer in the answer box and then click Check Answer Clear All Check Answer emaining 1:34 PM O Type here to search ^ · 4x 12/4/2017 EB) |

Explanation / Answer

Answer = 1 CALCUALATION OF WACC USING A BOOK VALUE METHOD Particlulars Amount Weight Cost WACC = ( Weight* Cost) Long Term Debt $          40,00,000 78.43% 6.00% 4.71% Preferred Stock $                40,000 0.78% 12% 0.09% Equity Stock $          10,60,000 20.78% 16.00% 3.33% Total $          51,00,000 100.00% 8.13% WACC AS PER BOOK VALUE METHOD= 8.13% Answer = 2 CALCUALATION OF WACC USING A MARKET VALUE METHOD Particlulars Amount Weight Cost WACC = ( Weight* Cost) Long Term Debt $          39,60,000 48.43% 6.00% 2.91% Preferred Stock $                61,000 0.75% 12% 0.09% Equity Stock $          41,55,000 50.82% 16.00% 8.13% Total $          81,76,000 100.00% 11.13% WACC AS PER MARKET VALUE METHOD= 11.13% Answer = 3 There is the differnce in the WACC in the both method = 3.00% There is the difference between because the market value and the book value of the stock and debts are different. Always preferred method for WACC is done on the basis of market value because this will shows the actual figure of our cost.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.