You are contemplating about whether to use book value or market value weights in WACC calculation

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You are contemplating about whether to use book value or market value weights in WACC calculation. Your firm's balance sheet shows a total of non-callable $45 million long-term debt with a coupon rate of 7% and a yield to maturity of 6%. This debt currently has a market value of $50 million. The company has 10 million shares of common stock, and the stock has a book value per share of $6.50. The current stock price is $22.50 per share; stockholders' required return, is, is 14%; and the firm's tax rate is 40%. Calculate WACCs based on book and market value weights. Which WACC should you use to evaluate company's future projects? Explain. $ 45 millions 7% 6% 50 millions 10 millions $ Book value of debt: Coupon rate of debt: YTM of debt: Market value of debt: Number of shares: Book value per share: Market price per share: Stockholder's required return: Tax rate: Component cost of debt: Cost of common stock: 6.50 $ 22.50 14% 40% 3 points 1 point Based on Book Value Market Value 4 points 4 points 4 points Weight of debt: Weight of equity: WACC: 1 point Which WACC? 2 points Explain