Calculate the weighted average cost of capital based on book value weights.
Response to the following problem:
Assume an after-tax cost of new debt of 8.63 percent and a cost of common equity of 16.5 percent.
The current market value of Genatrons long-term debt is $350,000. The common stock price is $20 per share and there are 30,000 shares outstanding. Calculate the WACC using market value weights and the component capital costs in (a).
Recalculate the WACC based on both book value and market value weights assuming that the before-tax cost of debt will be 18 percent, the company is in the 40 percent income tax bracket, and the after-tax cost of common equity capital is 21 percent