The other system of assigning weights is the marginal weights system. The marginal weights refer to the proportions in which the firm wants or intends to raise funds from different sources. In other words, the proportions in which additional funds required to finance the investment proposal will be raised are known as Marginal Weights. So, in case of marginal weights, the firm in fact, calculates the actual WACC of the incremental funds. Theoretically, the system of marginal weights seems to be good enough as the return from investment will be compared with the actual cost of funds. Moreover, if a particular source which has been used in the past but is not being now to raise additional funds, or cannot be used now for one or the other reason then why should it b allowed to enter the decision process even through the weighing system.

However, there are some shortcomings of the marginal weights system. In particular, the capital budgeting decision process require the long term perspective whereas the marginal weights ignore this. In short run, the firm may be tempted to raise funds only from cheaper sources and thereby accepting more and more proposals. However, later on when other sources will have to be resorted to, some projects which should have been accepted otherwise, will be rejected because of higher cost of capital.  

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