For a company that is not planning to change its target capital structure, the proportions of debt and equity used in calculating the weighted cost of capital should be based on the current ____ value weights of the individual components.

Question

Quizplus · Accepted Answer

The proportions of debt and equity used in calculating the weighted cost of capital should be based on the market value weights of the individual components. This is because the market value reflects the current investor perceptions of the company, and therefore represents the most accurate reflection of the true cost of capital. Book values are based on historical costs and accounting conventions and may not reflect current market values, while replacement values are irrelevant for determining the cost of capital. Accounting values are also based on historical costs and conventions and do not reflect current market values.

For a Company That Is Not Planning to Change Its