The book value of a company's capital represents the money the firm actually has. It can do whatever it wants with that money. Right?!?! Why then do authorities claim that market values of capital are appropriate for calculating the WACC
The capital entries on a firm's books (book values) represent capital the company raised in the past. That money isn't available to be currently invested in projects, because it was spent on the projects it was raised to support years ago. New projects will require funding that will have to be obtained in the near future, generally within a year. We would like to measure projects against the cost of that yet-to-be-raised capital, but don't have a crystal ball to see what the cost of money will be in the future. But the best estimate of that future cost is based current conditions in capital markets. We therefore use current market values to estimate cost and structure when we develop the WACC.
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