Question

Williams, Inc., has compiled the following information on its financing costs:

Type of Financing	Book Value			Market Value			Cost
Short-term debt	$	13,800,000		$	13,400,000		3.6	%
Long-term debt		33,500,000			31,100,000		6.7
Common stock		10,800,000			81,000,000		12.5
Total	$	58,100,000		$	125,500,000

The company is in the 24 percent tax bracket and has a target debt-equity ratio of 60 percent. The target short-term debt/long-term debt ratio is 15 percent.

  

a.	What is the company’s weighted average cost of capital using book value weights? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	What is the company’s weighted average cost of capital using market value weights? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c.	What is the company’s weighted average cost of capital using target capital structure weights? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

d.	Which is the correct WACC to use for project evaluation? Book Weight Market Weight Target Weight

Answer 1

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