It is generally better to base estimates of the WACC on book value weights of debt and equity since
market values, particularly those for equity, tend to ﬂuctuate widely.

Question

Quizplus · Accepted Answer

It is generally better to base estimates of the WACC on market value weights of debt and equity since market values reflect current and relevant information about the company's capital structure, whereas book values may be outdated or distorted by accounting methods. Market values, particularly those for equity, may fluctuate widely, but this volatility is a reflection of the true risk of the company's capital structure.

It Is Generally Better to Base Estimates of the WACC