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When calculating the weighted average cost of capital and companies use book values of debt and equity, is the WACC higher for book value than market value WACC of debt and equity?
If so why?
Thank YouCompanies should not use book values – they should use market values.
If they do use book values then the WACC is likely to be lower than it really is – because the book value of equity is likely to be lower than its real value. But this is certainly not always going to be the case and therefore is not a rule.
Okay thank you for your repy sir, also do you include current liabilities in the calculation of WACC?
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