Answer :
The WACC based on market values tend to be higher than the one based on book values if the stock price exceeded its book value because “ The price of the stock in the market increases means higher WACC using market values.”
Since the market price of the stock is increased means the share of equity in the market is high which leads to higher WACC using market values.
WACC refers to Weighted average cost of capital.
WACC represents firm’s average cost of capital which includes equity shares, preference shares, bonds and other forms of debts.
WACC is considered to represent firm’s opportunity cost which is used to evaluate investment opportunities.
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