Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?
a. Common stock
b. Notes Payable - Current
c. Inventory
d. Preferred stock
Answer :-
(C) Inventory
Explanation :- Inventory is not a capital component as inventory is a current asset , so, it is not used in weighted average cost of capital (Wacc) for use in capital budgeting.
Explanation for rejection of other points :-
(a) Common stock is a capital component which is included in WACC calculation.
(b) Notes payable is short term debt which is also a capital component and is included in WACC calculation.
(d) Preferred stock is also a source of finance which provide funds so, it is also a capital component and used in WACC calculation.
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