The correct answer is: B. market value of equity
Weighted average capital (WACC) is a measure of a company’s cost of capital. It is calculated by taking the weighted average of the costs of debt and equity capital. The weights are determined by the relative proportions of debt and equity in the company’s capital structure.
The market value of equity is not used in the calculation of WACC because it is not a reliable measure of the cost of equity capital. The market value of equity can be volatile and can be affected by factors other than the company’s financial performance.
The book value of equity is also not used in the calculation of WACC because it is not a reliable measure of the cost of equity capital. The book value of equity is based on the historical cost of the company’s assets, which may not reflect their current market value.
The cost of debt is the interest rate that a company pays on its outstanding debt. The cost of equity is the rate of return that investors require on their investment in the company. The weights are determined by the relative proportions of debt and equity in the company’s capital structure.
The WACC is used to calculate the discount rate for a company’s cash flows. The discount rate is used to calculate the present value of the company’s future cash flows. The present value of the company’s future cash flows is used to calculate the company’s value.