Soundy ~
You should be very proud of your daughter, as I know you are. You clearly raised a child that has solid values and is willing to do more than talk about them but will face the consequences and stand firm when challenged to abandon those values for expediency. God bless Sarah, you and Bo for the fine young lady you've raised.
As for suggestions: the teacher is obviously in some sort of weird power struggle and while I'll manfully resist the urge to speculate on her motivations, I do question why the teacher did not have to submit to the principle's asking her to allow Sarah to read a different book. My response would be to calmly request a meeting with the principle and ask him or her why this teacher apparently is not answerable to anyone. The principle may respond that teachers have autonomy in how they run their classes and the subject matter i. e. required reading. If so, politely inform him/her that you are dismayed that a good student like Sarah is going to be penalized for simply requesting being assigned a different book to read for her test because of moral issues. Would the school pull this on, say, a Muslim student? That is a rhetorical question because we both know the answer. I would write a brief letter to the school board president challenging this action by the teacher and another, different letter to the local newspaper, succinctly explaining the situation and stating that this kind of inflexibility should not be permitted in the schools. Be sure to inform the principle of your intentions but do not make it a threat, simply state it as a matter of fact. This alone may motivate him/her to reassess the situation but whether it does or not it will let Sarah know that while she has to obey authority (the teacher) this is not a dictatorship and she has other avenues to pursue to resolve this vexing issue.
My parents did this for me and my sister a few times during our school years. Suffice to say that my dad was very persuasive and the situation was usually resolved satisfactorily to all concerned. My wife and I also had to fight for our son a few times while he was a student (and a good one with no discipline problems) and were successful in getting a few issues resolved. This is what parents do. We can't fight all our children's battles but sometimes, being children (even if they think they're miniature adults) they need some adult intervention because they simply have no real standing with adult authority figures.
Soundy, no matter what you decide to do (I'm sure this thread will bring lots of suggestions) know that your daughter is right to hold to her perfectly reasonable resistance to reading this book and in this instance, the teacher is wrong and being intransigent out of some kind of motivation that none of us can fathom but, whether or not she is a good teacher, that does not speak well to her common sense. I trust you and Sarah will find a way to get through this and that it won't result in her receiving a zero and a much lowered grade. I, for one, will pray for you both in this situation.
Jim