Question

The capital structure weights used in computing a company's weighted average cost of capital: Multiple Choice depend upon the financing obtained to fund each specific project. are restricted to debt and common stock. are based on the market values of the outstanding securities. are based on the book values of debt and equity. remain constant over time unless new securities are issued or outstanding securities are redeemed.

Answer 1

Answer:

Option B Are based on the market values of the outstanding securities.

Explanation:

The reason is that the cost of equity and debts are calculated using the market values which provides the yield or return. So to find the weighted average cost of capital, the company has to find  weightings of each souce of finance (Percentage) and then it is multiplied with the cost of debt (If it is debt). So at the end we add up all the weightings of cost of finance source used and derive weighted average cost of capital. So the correct option is option B.