[Anonymous]

I mainly use Becker & Wiley study sources. I summarized topics/details into my original notes which also consist of MC (by topics) numbers on side. I believe this is a way to know angles how the topic is questioned. Becker & Wiley sometimes provide similar or same questions. However, its solutions or ways to come answers are different. I really need your experience to break these issues I have. I do not intend to criticize text. I just want to pass CPA exam. To do so, I should not miss any MC I am facing right now. Your help is greatly appreciated.

Similar/Same MC #1: I believe cost of capital consists of ST and LT elements to be used for LT investment decision. How come its answer is different? I need second opinion…Pls help..

Becker: Question CPA-03427

The theory underlying the cost of capital is primarily concerned with the cost of:

a.Long-term funds and old funds.

b.Short-term funds and new funds.

c.Long-term funds and new funds.

d.Any combination of old or new, short-term or long-term funds.

Choice “d” is correct. The cost of capital considers the cost of all funds – whether they are short-term, long-term, new or old. Choices “a”, “b”, and “c” are incorrect, per above.

Wiley TestBank: FINM-0020

The theory underlying the cost of capital is primarily concerned with the cost of

A: Long-term funds and old funds.

B: Short-term funds and new funds.

C: Long-term funds and new funds.

D: Any combination of old or new, short-term or long-term funds.

Answer Explanations

A: This answer is incorrect. Refer to the correct answer explanation.

B: This answer is incorrect. Refer to the correct answer explanation.

C: Answer C is correct. The theory underlying cost of capital is related to existing long-term financing and obtaining new long-term financing.

D: This answer is incorrect. Refer to the correct answer explanation.

[Excited_CPA]

I was working on my MCQ on Wiley and just ran into this problem too. Does anyone know which ones right?

BEC 04/14/12 87
FAR 08/28/12 88
AUD 10/06/12 94
REG 02/09/13 91

[Wiley CPA Exam Review]

This was an AICPA released question which is why it appears in both Test Banks. Wiley used the AICPA answer. We also think (C) is correct because the weighted average cost of capital is calculated only using long-term debt.

Hope that helps!

[Tux]

cpa punk –

I would like to understand the conflict with this question, also. Try emailing the academic support department at Becker asking why they think that “d” is correct. I would also let them know that you're using Wiley and the answer is different thru Wiley.

Thank you to the Wiley representative who responded to this posting with their explanation.

I would be interested in the comparison that Becker provides, too.

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Wiley CPA Exam Review]

Some additional information from Wiley POV:

Below is a link detailing how cost of capital is traditionally calculated using only long-term debt. There may be other sources that include both short-term and long-term debt. If so, this question is has two correct answers.

https://www.investopedia.com/terms/w/wacc.asp#axzz1pNhaPbz6

[TATI1012]

cpa_punk;

Please let us know what you find out from Becker. I agree with you on not criticizing the literature, but I'm very convinced that Becker does a terrible job at preparing for BEC and your concern is proof of such. Anyway, good luck and I hope you get an answer from them.

[jokami]

Did someone ever received some info from Becker on this… I am studying for BEC now and got this situation as well.

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[jokami]

Ok…. So I think I got an explanation for this and bear with me here; as I am trying to explain it in my “perfect” English.

As per my studies and internet search; the components of the cost of capital (debt and equity) considers both long-term and short-term, either old or new. For the “cost of debt” we include the interest cost in the calculation. However, most of the short term financing carries no interest, as known as “interest-free capital”.

Now, I think that the trick in this question might be with the words “primarily concerned” because the cost of capital is primarily concentrated in the financing cost of long term funds since most of the short term funding carries no interest.

So you can say that both answers are correct; but for this question in particular which include the tricky words “primarily concerned” I would have to go with Wiley on this one.

I even consulted my college professor, to check if my analysis made any sense to her. She approved. I hope this help any future student who confronts this situation.

B - 62, 70, 72, 79!!!
A - 68, 81
R - 70, 82
F - 84

"The limit to your abilities is where you place them" - Fortune Cookies

[Author]

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