Why Do We Use Market-Value Weights Instead of Book-Value Weights

question 7

Multiple Choice

Why do we use market-value weights instead of book-value weights?

• A) Because often-times firms "window-dress" their financial statements.
• B) Because we are interested in determining what the cost of financing the firm's assets would be given today's market situation and the component costs the firm currently faces, not what the historical prices would have been.
• C) Because it is required in the Sarbanes-Oxley regulations.
• D) None of these answers is correct.

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