The capital structure weights used in computing the weighted average cost of capital ______.Group of answer choicesare based on the book values of total debt and total equityare based on the market value of the firm's debt and equity securitiesare computed using the book value of the long-term debt and the book value of equityremain constant over time unless the firm issues new securities

the formula to calculate WACC = [(market value of equity / total market value of firm's financing) x cost of equity] + [(market value of debt / total market value of firm's financing) x cost of debt x (1 - tax rate)]

To calculate WACC you must use the market value of both stocks and total debt (including bonds and preferred stocks). The book value doesn't work for determining either equity (since stock price varies and is rarely equal to par value), and generally price of bonds and preferred stock are not equal to their face value. The only debt that generally maintains its book value are bank loans.