[HELP] WACC in Residual Income Model and WACC in others

CFA Level II
#1

I read somewhere that we use Book value weights for calculating WACC in Residual Model. So Please help me with this. Where do we use M.V Weights for calculating WACC, and where do we use B.V Weights for calculating WACC. Also if used from Book Value, in the total Debt portion, do we include Short Term Debt ?

#2

I don’t use wacc in residual income. I use cost of equity.

unless you’re talking about EP or EVA.

#3

Yeah Sorry. I meant Economic Profit and EVA.

#4

Could you help me out friend ? Just wanted to confirm if we use WACC weighted on book value in Residual Income and market weights for others (eg. FCFF)

#5

Buddy, WACC is always on market value (unless market values are = book values or unless the bond markets aren’t too active in a country). Also, reisdual income is always on cost of equity unless you’re refereing to EVA or EP.

#6

Thanks.