Zagrot Trucking’s balance sheet shows a total of noncallable $45 million long-term debt with a coupon...

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Zagrot Trucking’s balance sheet shows a total of noncallable $45million long-term debt with a coupon rate of 8.00% and a yield tomaturity of 6.00%. This debt currently has a market value of $100million. The balance sheet also shows that the company has 20million shares of common stock, and the book value of the commonequity (common stock plus retained earnings) is $650 million. Thecurrent stock price is $100 per share; stockholders' requiredreturn, r_s, is 13.00%; and the firm's tax rate is 21%.The CFO thinks the WACC should be based on market value weights,but the president thinks book weights are more appropriate. What isthe difference between these two WACCs?

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MV WACC MV of equityPrice of equitynumber of shares outstanding MV of equity10020000000 2000000000 MV of BondPar valuebonds outstandingage of par MV of Bond100045000222222222222222 100000000 MV of See Answer

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Zagrot Trucking’s balance sheet shows a total of noncallable $45million long-term debt with a coupon rate of 8.00% and a yield tomaturity of 6.00%. This debt currently has a market value of $100million. The balance sheet also shows that the company has 20million shares of common stock, and the book value of the commonequity (common stock plus retained earnings) is $650 million. Thecurrent stock price is $100 per share; stockholders' requiredreturn, rs, is 13.00%; and the firm's tax rate is 21%.The CFO thinks the WACC should be based on market value weights,but the president thinks book weights are more appropriate. What isthe difference between these two WACCs?