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LOS 36.c: Describe the use of target capital
structure in estimating WACC and how Session Unit 10:
target capital structure weights may be 36. Cost of Capital
determined., p.43
Target capital structure -the proportions (based on market values) of debt, preferred stock, and equity
that the firm expects to achieve over time.
A CFA should use current capital structure (based on market values) if no explicit target is provided.
tanties
For the industry average approach, simply use the arithmetic average of the current market weights
(for each capital source) from a sample of industry firms.
