Promo Pak has compiled the following financial data: Source of Capital Book Value Market Value Cost...

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Finance

Promo Pak has compiled the following financial data: Source ofCapital Book Value Market Value Cost Long-term debt $ 10,000,000 $12,000,000 6.0% Preferred stock 1,000,000 1,200,000 12.0 Commonstock equity 12,000,000 15,000,000 15.0 ------------ ------------$23,000,000 $28,200,000 a. Calculate the weighted average cost ofcapital using book value weights. b. Calculate the weighted averagecost of capital using market value weights.

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	Book value	Market value	Cost of capital
Long-term debt	10,000,000	12,000,000	6%
Preferred stock	1,000,000	1,200,000	12%
Common stock equity	12,000,000	15,000,000	15%
	23,000,000	28,200,000

a. Calculate the weighted average cost of capital using book value weights


	Book value	Weight	Cost of capital	Weight* cost
Long-term debt	10,000,000	43.48%	6.00%	2.61%
Preferred stock	1,000,000	4.35%	12.00%	0.52%
Common stock equity	12,000,000	52.17%	15.00%	7.83%
	23,000,000			10.96%

therefore Cost of capital =		10.96%

b. Calculate the weighted average cost of capital using market value weights.

	Book value	Weight	Cost of capital	Weight* cost
Long-term debt	12,000,000	42.55%	6.00%	2.55%
Preferred stock	1,200,000	4.26%	12.00%	0.51%
Common stock equity	15,000,000	53.19%	15.00%	7.98%
	28,200,000			11.04%

therefore Cost of capital =		11.04%

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Promo Pak has compiled the following financial data: Source ofCapital Book Value Market Value Cost Long-term debt $ 10,000,000 $12,000,000 6.0% Preferred stock 1,000,000 1,200,000 12.0 Commonstock equity 12,000,000 15,000,000 15.0 ------------ ------------$23,000,000 $28,200,000 a. Calculate the weighted average cost ofcapital using book value weights. b. Calculate the weighted averagecost of capital using market value weights.

Promo Pak has compiled the following financial data: Source of Capital Book Value Market Value Cost...

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