When computing the weighted average cost of capital,the weighting should be proportional based on the ______ rather than the _____ value of the firm.

Question

Quizplus · Accepted Answer

The weighting should be proportional based on the market value of the firm because this represents the current value of the company and reflects the expectations of investors. The book value, on the other hand, simply represents the historical cost of the assets and liabilities and may not reflect the current market conditions or the future potential of the company. Therefore, using the market value as the weighting factor provides a more accurate representation of the true cost of capital for the company.

When Computing the Weighted Average Cost of Capital,the Weighting Should