If we stop and have a think of what the WACC is going to be used for, for a second. It's used in a discounted cash flow And a discounted cash flow takes the cash flows from today to infinity and present values them back to today Because we're looking at cash flows over such a long period, we therefore need to have some of the characteristic of our WACC also looking at the long term as well In particular we need the capital structure, the proportion of debt and equity funding to also be looking at the long term So that's why the WACC calculation should be based on target capital structure I.e. what do we expect the capital structure to be into the long term? In order to help us do this, a peer group analysis can give guidance as to expected long term capital structure Basically, you get a group of peers together, look for the mature companies within that group And look at the capital structure they've managed to achieve If we look at the table on the right hand side, we've got a group of companies from the food industry They've all got a debt divided by their funding of around about 20-25% So that might give us our target capital structure for this industry Do note though that ConAgra is a bit of an outlier (it's 30.2%). So we might leave that one out Maybe it's not as mature, maybe it's not as representative of the rest of the industry