medium · Principles of Finance cost-of-capital-structure
In a WACC calculation, why is it necessary to use the market value of debt rather than its book value?
- Because the tax shield calculation legally depends on the market value of the firm's debt.
- Because market value reflects the current cost of issuing new debt to finance projects.
- Because book value always exceeds market value once accumulated depreciation is applied.
- Because market value figures are easier to obtain from the balance sheet.
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