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,rs,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%
Correct Answer:
Verified
Correct Answer:
Verified
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