market or book value for wd, we?

CFA Level II
#1

I apologize if this topic was covered elsewhere, but I can’t seem to find it. To determine weights for debt, equity to calculate WACC: we use market values of debt and equity, yes? And we use YTM on current bonds as cost of debt, yes? Thanks in advance. Seems that market value would make sense, as this would reflect the actual cost of borrowing … But then, in my notes I see that to calculate the capital charge, we use boy book value…

#2

This has bugged me for a while, I think you use their target levels of debt and equity. If they aren’t provided then use market values. Not sure about cost of debt, isn’t it just cost on most recent borrowings or something like that? Anyone better versed in this please jump in

#3

yeah cost of debt will be the YTM current outstanding logically, has to be: if your bonds are trading @ 8 YTM who would ever pay you less than 8 coupon for new ones.

#4

I think the pecking order is as follows: Target Market Book Can anyone confirm?

#5

looks rights. Do we only use book value when doing RI or ECO profit questions? Can someone confirms this?

#6

bpdulog Wrote: ------------------------------------------------------- > I think the pecking order is as follows: > > Target > Market > Book > > Can anyone confirm? I was going to post this. I concur.

#7

Justin, remember beginning BV

#8

yeah, I just had an epiphany, sadly I always remembered value for a firm uses BV0 And RI uses BVT-1 Which are essentially the same, i was about to remind you of the difference…