We need the values of debt and equity to estimate the cost of capital and WACC. The book values of debt and equity are easier to obtain. But note that we ideally want the market values of debt and equity and not the book values of debt and equity. Why?
The financial statements including the balance sheet are prepared according to the financial accounting rules prescribed by the SEC. These regulations usually value these assets at cost. Therefore the values of debt and equity in the balance sheet are book values and usually reflect historical costs. This may not reflect today’s values. We prefer to go with market values as it reflects current costs which are more realistic as opposed to historical costs.
Another drawback is that book values could also lead to negative values!