Historical Weights Assignment Help | Historical Weights Homework Help


Historical or existing weights are the weights based on the actual or existing proportions of different sources in the overall capital structure. Such weighing system is based on the actual proportions at the time when the WACC is being calculated. In other words, the weighing system is the proportions in which the funds have already been raised by the firm. The use of historical weights is based on two important assumptions namely

i)    The firm would raise the additional resources required for financing the investment proposals, in the same proportions in which they are appearing at present in the capital structure.
ii)    The present capital structure is optimal and therefore the firm wants to continue with the same pattern in future also.

However, there may be some problems in applying the historical weights. The firm may not be able to raise additional finance in the same proportion as existing one because of prevailing economic and capital market conditions, legal constraints or other factors. Further, the assumption of existing capital structure being the optimal one may not always hold good.   

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