A firm's cost of capital should be computed using the book weights of each financing source.

Question

Quizplus · Accepted Answer

A firm's cost of capital should be computed using the market value weights of each financing source rather than the book values as market value weights are based on current market rates and reflect the true costs of financing. Book value weights are historical and may not reflect current market values. Therefore, market value weights provide a more accurate representation of a firm's cost of capital.

A Firm's Cost of Capital Should Be Computed Using the Book