question archive Which of the below options are the best source of weights to calculate a company's Weighted Average Cost of Capital? A) The values found in the Balance Sheet from the company's most recent Annual Report (regardless of whether this is the most recent publicly available document)
Which of the below options are the best source of weights to calculate a company's Weighted Average Cost of Capital? A) The values found in the Balance Sheet from the company's most recent Annual Report (regardless of whether this is the most recent publicly available document)
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Which of the below options are the best source of weights to calculate a company's Weighted Average Cost of Capital?
A) The values found in the Balance Sheet from the company's most recent Annual Report (regardless of whether this is the most recent publicly available document).
B) The values found in the Balance Sheet from the company's most recent Quarterly Report (assuming this is the most recent publicly available document).
C) Using the most recent stock price.
D) Market values.
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Answer:
D) Market values. (While calculating the weighted-average of the returns expected by various providers of capital, market value weights for each financing element (equity, debt, etc.) must be used, because market values reflect the true economic claim of each type of financing outstanding whereas book values may not.)
