When discussing weighing schemes for calculating the weighted average cost of capital, the preferences can be stated as
A) market value weights are preferred over book value weights and target weights are preferred over historic weights.
B) book value weights are preferred over market value weights and target weights are preferred over historic weights.
C) book value weights are preferred over market value weights and historic weights are preferred over target weights.
D) market value weights are preferred over book value weights and historic weights are preferred over target weights.

Question

Quizplus · Accepted Answer

Market value weights are preferred over book value weights as they reflect the true value of the firm's assets and liabilities in the current market. Target weights are preferred over historic weights as they provide a more current and relevant reflection of the firm's capital structure.

When Discussing Weighing Schemes for Calculating the Weighted Average Cost