In Calculating the WACC, It's Most Appropriate to Use

question 128

Multiple Choice

In calculating the WACC, it's most appropriate to use:

• A)market values for structure and component costs because the best reflect next year's capital costs which will be encountered when money is raised for future projects.
• B)book values for structure and component costs because these reflect the actual existing capital structure and what the firm really pays for the capital it has.
• C)the target structure because it's in some sense the best.
• D)market values for structure and target values for costs because they're the most practical.

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Definitions:

Barter

The direct exchange of goods and services without the use of money as an intermediary.

Money-Based Trade

Transactions involving the exchange of goods or services for money, as opposed to barter trade, where goods are exchanged directly for other goods.

Consumer Sovereignty

The concept that consumers have the ultimate control over the goods and services produced by economies based on their preferences and spending choices.

Market System

An economic organization where choices relating to the investment in, production of, and distribution of goods and services are influenced by supply and demand dynamics, and where the prices are freely set in an open market pricing system.