In computing the weighted average cost of capital, the target weights are either book value or historical value weights based on actual capital structure proportions.

Question

Quizplus · Accepted Answer

The target weights used in computing the weighted average cost of capital are based on the market value of each component of capital, not their book value or historical value proportions. Market value weights reflect the true value of a firm's capital structure and are based on the current market price of the stock and bonds outstanding.

In Computing the Weighted Average Cost of Capital, the Target