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CS Executive · Corporate Accounting and Financial Management · Cost of Capital

Which weighting basis for WACC is generally regarded as theoretically superior because it reflects current investor expectations?

Market value weights are theoretically superior. They reflect the current values at which investors price each source of capital and so represent present opportunity costs, whereas book values are historical accounting figures that may not reflect current conditions.

  1. ABook value weights
  2. BHistorical weights
  3. CMarket value weightsCorrect
  4. DFace value weights

Explanation

Market value weights reflect the current worth of each source in investors' eyes and present opportunity costs. Book values reflect historical accounting entries and may be misleading.

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