Promo Pak has compiled the following financial data:
Source of Capital Book Value Market Value Cost
Long-term debt $ 8,000,000 $ 8,500,000 5.0%
Preferred stock 500,000 750,000 12.0
Common stock equity 9,000,000 15,000,000 16.0
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$17,500,000 $24,250,000
a. Calculate the weighted average cost of capital using book value weights.
b. Calculate the weighted average cost of capital using market value weights.