Question

When we calculate WACC, do we consider such current liabilities as accounts payable, accruals, and deferred...

When we calculate WACC, do we consider such current liabilities as accounts payable, accruals, and deferred taxes as sources of funding? Why?

Homework Answers

Answer #1

Answer :-

WACC is termed as Weighted Average Cost of Capital . It is a average rate which a business pays to finance is assets .  We do not consider such current liabilities as accounts payable, accruals, and deferred taxes as sources of funding while calculating WACC as we only consider only Cost of Equity , Cost of Preference Shares and Cost of Long term debt . We take all this cost after tax . So it is a Weighted Average after tax Cost of Capital. We don't current liabilities as accounts payable, accruals, and deferred taxes because there are the par of operating liabilities not of capital employed and we need to take only of cost of capital employed in WACC.

If there is any doubt please ask in comments

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which of following statements is not correct? (explain why D is correct answer) a) Accounts payable,...
Which of following statements is not correct? (explain why D is correct answer) a) Accounts payable, accruals, and deferred taxes are not sources of funding that come from investors, so they are not included in the calculation of the cost of capital. b)Capital components are sources of funding that come from investors: debt, preferred stock, common equity. c) Tax effects associated with financing can be incorporated either in capital budgeting cash flows or in cost of capital. d) The cost...
Which of the following statements is NOT correct? a. When estimating the cost of debt, don’t...
Which of the following statements is NOT correct? a. When estimating the cost of debt, don’t use the coupon rate on existing debt. b.Use the current interest rate on new debt. When estimating the risk premium for the CAPM approach, don’t subtract the current long-term T-bond rate from the historical average return on common stocks. c. Use the target capital structure to determine the weights. If you don’t know the target weights, then use the current book value of equity...
Current assets $38,000,000 Accounts Payable $10,000,000 Accruals $9,000,000 Net plant, property & equipment $101,000,000 Current Liabilities...
Current assets $38,000,000 Accounts Payable $10,000,000 Accruals $9,000,000 Net plant, property & equipment $101,000,000 Current Liabilities $19,000,000 Long term debt (40,000 bonds, $1,000 face value) $40,000,000 Common Stock (10,000,000 shares) $30,000,000 Retained Earnings $50,000,000 Total shareholders equity $80,000,000 Total Assets $139,000,000 Total Liabilities and shareholders Equity $139,000,000 Your boss has asked you to estimate the weighted average cost of capital for CGT company. You have the above balance sheet and this information: CGT stock is currently selling for $7.50 per...
Category Prior Year Current Year Accounts payable ??? ??? Accounts receivable 320,715 397,400 Accruals 40,500 33,750...
Category Prior Year Current Year Accounts payable ??? ??? Accounts receivable 320,715 397,400 Accruals 40,500 33,750 Additional paid in capital 500,000 541,650 Cash 17,500 47,500 Common Stock 94,000 105,000 COGS 328,500 430,648.00 Current portion long-term debt 33,750 35,000 Depreciation expense 54,000 54,589.00 Interest expense 40,500 41,638.00 Inventories 279,000 288,000 Long-term debt 335,232.00 400,937.00 Net fixed assets 946,535 999,000 Notes payable 148,500 162,000 Operating expenses (excl. depr.) 126,000 162,603.00 Retained earnings 306,000 342,000 Sales 639,000 845,746.00 Taxes 24,750 48,445.00 What is...
Category Prior Year Current Year Accounts payable ??? ??? Accounts receivable 320,715 397,400 Accruals 40,500 33,750...
Category Prior Year Current Year Accounts payable ??? ??? Accounts receivable 320,715 397,400 Accruals 40,500 33,750 Additional paid in capital 500,000 541,650 Cash 17,500 47,500 Common Stock 94,000 105,000 COGS 328,500 430,068.00 Current portion long-term debt 33,750 35,000 Depreciation expense 54,000 55,705.00 Interest expense 40,500 42,293.00 Inventories 279,000 288,000 Long-term debt 338,413.00 400,233.00 Net fixed assets 946,535 999,000 Notes payable 148,500 162,000 Operating expenses (excl. depr.) 126,000 162,082.00 Retained earnings 306,000 342,000 Sales 639,000 846,942.00 Taxes 24,750 48,751.00 What is...
Item Prior year Current year Accounts payable 8,128.00 7,941.00 Accounts receivable 6,018.00 6,795.00 Accruals 1,018.00 1,562.00...
Item Prior year Current year Accounts payable 8,128.00 7,941.00 Accounts receivable 6,018.00 6,795.00 Accruals 1,018.00 1,562.00 Cash ??? ??? Common Stock 11,706.00 11,191.00 COGS 12,675.00 18,387.00 Current portion long-term debt 5,052.00 4,980.00 Depreciation expense 2,500 2,758.00 Interest expense 733 417 Inventories 4,103.00 4,807.00 Long-term debt 13,983.00 13,499.00 Net fixed assets 50,428.00 54,010.00 Notes payable 4,377.00 9,836.00 Operating expenses (excl. depr.) 13,977 18,172 Retained earnings 28,828.00 29,707.00 Sales 35,119 46,562.00 Taxes 2,084 2,775 What is the firm's dividend payment in the...
Item Prior year Current year Accounts payable 8,128.00 7,941.00 Accounts receivable 6,018.00 6,795.00 Accruals 1,018.00 1,562.00...
Item Prior year Current year Accounts payable 8,128.00 7,941.00 Accounts receivable 6,018.00 6,795.00 Accruals 1,018.00 1,562.00 Cash ??? ??? Common Stock 11,706.00 11,191.00 COGS 12,675.00 18,387.00 Current portion long-term debt 5,052.00 4,980.00 Depreciation expense 2,500 2,758.00 Interest expense 733 417 Inventories 4,103.00 4,807.00 Long-term debt 13,983.00 13,499.00 Net fixed assets 50,428.00 54,010.00 Notes payable 4,377.00 9,836.00 Operating expenses (excl. depr.) 13,977 18,172 Retained earnings 28,828.00 29,707.00 Sales 35,119 46,562.00 Taxes 2,084 2,775 What is the firm's dividend payment in the...
Item Prior year Current year Accounts payable 8,103.00 7,920.00 Accounts receivable 6,081.00 6,779.00 Accruals 1,043.00 1,417.00...
Item Prior year Current year Accounts payable 8,103.00 7,920.00 Accounts receivable 6,081.00 6,779.00 Accruals 1,043.00 1,417.00 Cash ??? ??? Common Stock 10,524.00 11,795.00 COGS 12,770.00 18,133.00 Current portion long-term debt 4,987.00 4,938.00 Depreciation expense 2,500 2,804.00 Interest expense 733 417 Inventories 4,203.00 4,801.00 Long-term debt 14,544.00 14,175.00 Net fixed assets 51,114.00 54,532.00 Notes payable 4,331.00 9,834.00 Operating expenses (excl. depr.) 13,977 18,172 Retained earnings 28,988.00 30,369.00 Sales 35,119 47,583.00 Taxes 2,084 2,775 What is the firm's cash flow from financing?
Category Prior year Current year Accounts payable 41,400 45,000 Accounts receivable 115,200 122,400 Accruals 16,200 13,500...
Category Prior year Current year Accounts payable 41,400 45,000 Accounts receivable 115,200 122,400 Accruals 16,200 13,500 Additional paid in capital 200,000 216,660 Cash ??? ??? Common Stock @ par value 37,600 42,000 COGS 131,400 177,758.00 Depreciation expense 21,600 22,063.00 Interest expense 16,200 16,224.00 Inventories 111,600 115,200 Long-term debt 135,000 137,651.00 Net fixed assets 376,251.00 399,600 Notes payable 59,400 64,800 Operating expenses (excl. depr.) 50,400 61,943.00 Retained earnings 122,400 136,800 Sales 255,600 335,881.00 Taxes 9,900 19,137.00 What is the current year's...
Item Prior year Current year Accounts payable 8,165.00 7,760.00 Accounts receivable 6,012.00 6,697.00 Accruals 970.00 1,490.00...
Item Prior year Current year Accounts payable 8,165.00 7,760.00 Accounts receivable 6,012.00 6,697.00 Accruals 970.00 1,490.00 Cash ??? ??? Common Stock 11,415.00 11,427.00 COGS 12,726.00 18,347.00 Current portion long-term debt 5,027.00 5,055.00 Depreciation expense 2,500 2,776.00 Interest expense 733 417 Inventories 4,194.00 4,776.00 Long-term debt 13,983.00 14,297.00 Net fixed assets 51,311.00 54,134.00 Notes payable 4,389.00 9,896.00 Operating expenses (excl. depr.) 13,977 18,172 Retained earnings 28,625.00 29,256.00 Sales 35,119 47,596.00 Taxes 2,084 2,775 What is the firm's cash flow from operations?