The president and CFO of Fitbit are having a disagreement about whether to use market value or book

value weights in calculating the weighted average cost of capital (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, r s , is

14.00%; and the firm's tax rate is 25%. 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?