General Studies · WACC

When calculating the WACC, why are the weights usually based on the market values of debt and equity rather than their book values?

Verified Solution4 OptionsUpdated: October 2026👁️1 View

1Market values are more stable over time than book values
2Book values are difficult for investors to ascertain
3Market values reflect the true economic worth and current cost of capital components✓
4Book values do not include the effect of retained earnings

Correct answer

Market values reflect the true economic worth and current cost of capital components

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