The president and CFO of Spellman Transportation are having a disagreement about whether to use market value or book value weights in calculating the WACC.Spellman's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%.This debt currently has a market value of $50 million.The company has 10 million shares of common stock,and the book value of the common equity (common stock plus retained earnings)is $65 million.The current stock price is $22.50 per share;stockholders' required return,r_s,is 14.00%;and the firm's tax rate is 40%.The CFO thinks the WACC should be based on market value weights,but the president thinks book weights are more appropriate.What is the difference between these two WACCs? A) 1.55% B) 1.72% C) 1.91% D) 2.13% E) 2.36%

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The Answer of The president and CFO of Spellman Transportation are having a disagreement about whether to use market value or book value weights in calculating the WACC.Spellman's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%.This debt currently has a market value of $50 million.The company has 10 million shares of common stock,and the book value of the common equity (common stock plus retained earnings)is $65 million.The current stock price is $22.50 per share;stockholders' required return,r_s,is 14.00%;and the firm's tax rate is 40%.The CFO thinks the WACC should be based on market value weights,but the president thinks book weights are more appropriate.What is the difference between these two WACCs? A) 1.55% B) 1.72% C) 1.91% D) 2.13% E) 2.36%

The President and CFO of Spellman Transportation Are Having a Disagreement