In calculating the weighted average cost of capital,the weights should be estimated using the market value of the target firm's debt and equity.

Question

Quizplus · Accepted Answer

In order to calculate the weighted average cost of capital (WACC), the weights assigned to each component (debt and equity) should be based on their respective market values. This is because market value reflects the actual valuation of the firm's capital structure by investors and creditors, while book value may not accurately reflect the true value of a company's assets and liabilities. Therefore, using market value weightings is more appropriate and reliable for determining the overall cost of capital for the company.

In Calculating the Weighted Average Cost of Capital,the Weights Should