question archive Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital as it applies to capital budgeting? A
Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital as it applies to capital budgeting? A
Subject:BusinessPrice:2.87 Bought7
Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital as it applies to capital budgeting?
A. Long-term debt.
B. Common stock.
C. Accounts payable.
D. Preferred stock.
E. All of the above are considered capital components for WACC and capital budgeting purposes.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Answer:
C. Accounts payable.
Wacc% is calculates as weighted average of cost of capital. And capital includes Debt , preferred stock and common stock. Account payable is current asset hence wont be included to calculate wacc %. Wacc % is calculated to take long term decisions taking capital employed .
Formula : ke × equity weight + kd × debt weight + kp × preferred weight.
Where ke = cost of equity
Kd = cost of debt
Kp = cost of preferred stock.
