Schweser has an example when teaching accounting income where the amount of debt used to finance a project (and therefore, interest expense) is based on the market value of the project (calculated as the PV of cash flows) as opposed to the actual dollar investment needed to get the project going (which I suppose would be the book value). On the very next page as they transition to a topic on economic profit, they use the same example and calculate WACC using the book value instead.
I’ve never heard of using market values when deciding on capital structure. I don’t even see how it’d be relevant since we are deciding on whether to invest in a project, not whether to acquire a publicly traded company that’s engaging in the project. Any light you can shed would be much appreciated.
Thanks!