3. 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, is, 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? Coupon rate YTM 5 BV debt (milions) 6 MV debt (milions) 7 Shares 8 Price 10 BV equity (milions) 11 MV equity (milions) 12 Tax rate 13 14 BV Total 11-1 112 11-3 4 YTM 5 BV debt (milions) 6 MV debt (milions) 7 Shares 8 Price ors 10 BV equity (milions) 11 MV equity (milions) 12 Tax rate 13 14 BV Total 15 BV debt weight 16 BV equity weight 17 BV WACC 19 MV Total 20 MV debt weight 21 MV equity weight 22 MV WACC 24 Difference 11-1 | 11-2 11-3 Ready