Question
ormula bar I8. The president and CFO of NPP Transportation are having a disagreement about whetherto use market value or book value weights in calculating
ormula bar
I8. The president and CFO of NPP Transportation are having a disagreement about whetherto use market value or book value weights in calculating the WACC Npps balance sheetshows a total of noncallable $45 million long-term debt with a coupon rate of.00% and ayield to maturity of 6.00% This debt currently has a market value of S50 million. Thecompany has 10 million shares of common stock, and the book value of the commonequity (common stock plus retained earnings)is $65 million. The current stock price is522 50 per share, stockholders required return, rs, is 14.00% and the firms tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the presidentthinks book weights are more appropriate. What is the difference between these two WACCS?
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