[Anonymous]

Please help on this topic…I am stuck.. In calculating weighted average cost of capital, do you include “current liability” and “short term debt”? I use Becker and Wiley for main study sources. However, they have different indications…what does your study text indicate regarding this topic?.. any hints or explanation will be very very appreciated.

[MustPass1988]

WACC is actually pretty simple once you get the hang of it- you just multiply debt and equity by their proportion of capital structure and cost of capital. Just don't forget to account for the interest rate and the tax shield for debt. For example, if the Debt has a proportion of capital structure of 30% and it's cost of capital is 10% with a tax rate of 30%, it would be (30% * 10%) * (1-30%)= 2.10%

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[Yvonne570]

Piece of cake.

WACC = E/V * Re + D/V * Rd * (1 – Tc)

Re = cost of equity

Rd = cost of debt

E = market value of the firm's equity

D = market value of the firm's debt

V = E + D

E/V = percentage of financing that is equity

D/V = percentage of financing that is debt

Tc = corporate tax rate

LOL

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

[Anonymous]

Thank you for your reply, MustPass1988 & Yvonne570. I feel pretty much comfortable on most of WACC MC except one of my question of “current liability” in my head… how do you deal with , for example, “accounts payable” or “note/loan payable”? (r u gonna include these in calculation?) well, I've finally received a good explanation from one of Becker instructors. thus, i feel relieved..most of instructors just replied with WACC formula…or stating its definition as textbook said…and I needed a little more specific explanation why A/P is not included in cal and why N/P does… Anyway, I appreciate all of your feedbacks!! good luck!!

[Author]

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