Which of these statements is true regarding calculating weights for WACC?
A) If we are calculating WACC for the firm, then equity, preferred stock and debt would be the entire book value of each source of capital.
B) If we are calculating WACC for the firm, then equity, preferred stock and debt would be the entire market value of each source of capital.
C) If we are calculating WACC for a project, then equity, preferred stock and debt would be the entire book value of each source of capital.
D) If we are calculating WACC for a project, then equity, preferred stock and debt would be the entire market value of each source of capital.

Question

Quizplus · Accepted Answer

When calculating the Weighted Average Cost of Capital (WACC) for a firm, it is more accurate to use the market values of equity, preferred stock, and debt rather than their book values. This is because market values better reflect the current cost of capital.

Which of These Statements Is True Regarding Calculating Weights for WACC