Sapp Trucking's Balance Sheet Shows a Total of Noncallable $45

Multiple Choice

Sapp Trucking'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 balance sheet also shows that 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) 2.48%
B) 2.25%
C) 2.36%
D) 2.95%
E) 1.77%