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Sir, should reserves included when calculating WACC whether market value or book value?
Unless you are told to do otherwise, we always calculate WACC on market values. In this case, the market value of equity effectively already includes the reserves (it is the main reason why the market value is more than the nominal value of the shares) – so you do not add on the reserves.
If, on the other hand, you are specifically asked to calculate WACC using book values (which has only happened on one occasion), then for equity you take the total book value – i.e. you to include the reserves.
Thank you…
If not included reserves when calculating BOOK VALUE WACC, is there wrong?
Yes – that would be wrong.
(This was asked in last times exam, and you can see in the examiners answer that when calculating based on book value then you use share capital + reserves)
Then I am wrong, because I did not included reserves in calculating book value wacc in exam…
By the way,
Thank you sir.Appreciating for your replied!
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