The proportions of debt and equity used to determine the weighted average cost of capital for the company is based on the market value of debt and equity outstanding.

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is determined by taking the weighted average of the cost of debt and the cost of equity. The weights used in calculating the WACC are based on the market value of the debt and equity outstanding. This means that the proportions of debt and equity used in the calculation of WACC are based on the market value, not the book value, of debt and equity outstanding. Therefore, the statement is true.

The Proportions of Debt and Equity Used to Determine the Weighted