Suppose That an Analyst Incorrectly Calculates WACCs Using Book Values

question 53

True/False

Suppose that an analyst incorrectly calculates WACCs using book values of debt and equity instead of market values.The resulting WACC estimates will generally be too high.
Book value of equity is generally lower than market value, while the book value of debt is generally nearer to the market value.Using book values will therefore underweight the cost of equity.The resulting WACC estimates will generally be too low.

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