The Biggest Mistake Students Make With WACC

Picture this: you're grinding through homework, and suddenly a WACC question brings you to a dead stop. It's frustrating, but the fix is actually simpler than you think.

Did you make this error?

• The Trap: using book value instead of market value for equity
• The Proof: Read this scenario: When calculating the Weighted Average Cost of Capital, using the accounting book value of equity artificially lowers the WACC. Always use current market capitalization.

If your logic doesn't match the proof above, you've fallen for the trap. Erase it and start over.

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