When discussing weighing schemes for calculating the weighted average cost of capital, the preferences can be stated as
A) book value weights are preferred over market value weights and target weights are preferred over historic weights.
B) market value weights are preferred over book 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 current market perception of the company's value. Target weights are also preferred as they represent the intended capital structure of the company, which is typically more relevant than the historic weights that may not reflect the current financial environment.

When Discussing Weighing Schemes for Calculating the Weighted Average Cost