What could be wrong in using market value weights to arrive at WACC? How can you fix it?

You are encouraged to always use the market value of debt and equity to arrive at your WACC (as opposed to book value of debt and equity). Do you see any issue or contradiction with using the market value of debt and equity to arrive at your WACC? Even if you have no other option, could there be a theoretical issue?

We explore this question “What could be wrong in using market value weights to arrive at WACC? How can you fix it?” on this page.

Using the market value of debt and equity to calculate the weights of debt and equity in estimating WACC throws up a circularity problem. You are using the market value of debt and equity to compute the weights of debt and equity in estimating WACC to value the firm/equity. But you have just used the value of debt and equity to arrive at the WACC! A solution maybe to iterate multiple times to settle on the right values of debt and equity.

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