Market Value Or Book Value Of Equity For Wacc

That s because unlike equity the market value of debt usually doesn t deviate too far from the book value 1.

Market value or book value of equity for wacc. As the formula demonstrates to calculate the wacc you need to estimate the values of all equity and debt components in the deal structure. Still market value wacc is considered appropriate by analysts because an investor would demand market required rate of return on the market value of the capital and not the book value of the capital. Importantly in business valuation situations the calculation requires the market value of equity rather than its book value.

We now turn to calculating the costs of capital and we ll start. To estimate the wacc analysts would have to compute the weight of each financing resources. Book value is equal to the value of the firm s equity while market value indicates the current market value of any firm or any asset.

Armed with both debt value and equity value you can calculate the debt and equity mix as. Current market value of the share is 30 and book value is 18 and market required rate of return is 20. While calculating the weighted average of the returns expected by various providers of capital market value weights for each financing element equity debt etc must be used because market values reflect the true economic claim of each type of financing outstanding whereas book values may not.

Debt mix debt debt equity equity mix equity debt equity cost of debt. Book value gives us the actual worth of the assets owned by the company whereas market value is the projected value of the firms or the assets worth in the market. As of the end of its most recent quarter oct.

Book value versus market value of equity. Assume a firm issued capital at 10 per equity share 5 years back. Common equity preferred stock and bonds.