Under what conditions can a company's current capital structure be used to calculate the weights for each source of funds?
A)When implementing a new project will alter a company's capital structure.
B)When implementing a new project is not expected to alter a company's capital structure.
C)When reliable market weights can be obtained.
D)Only when preference shares are not included in the measure for WACC.

Question

Quizplus · Accepted Answer

The current capital structure can be used to calculate the weights for each source of funds when implementing a new project is not expected to alter the company's capital structure because in such a scenario, the current capital structure represents the current financing mix of the company. If there are any anticipated changes to the capital structure due to the new project, then the current capital structure would not be an accurate representation of future financing mix, and reliable market weights would need to be used instead. The inclusion of preference shares does not affect the use of the current capital structure to calculate weights.

Under What Conditions Can a Company's Current Capital Structure Be