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    • It depends whether or not the overdraft is intended to be long term.

      If not long term then it should not be included.

      If it is intended to be long term then it should be included (remembering that the cost is the interest less tax relief).

      Usually the examiner makes it clear as to whether or not it is intended to be long term. If he does not make it clear then he accepts it included or not included (even though the WACC may be different). Just check as to whether or not he make it clear, and if he does not then state your assumption.

  4. Honestly, what is it with tutors on opentuition (John Moffat especially) that once they handle topics on ACCA, cloudy areas just become clear and dreaded subject areas become a piece of cake? They just ace it when they explain topics… Really, other tutors (who think they know stuff but don’t) should learn from these great OT tutors…they’re simply awesome! Common guys we need to canvass for an award for ’em..Not being patronising, just truly grateful 馃檪

  11. Hi, the lectures are very good. But on this example i am having problems understanding two calculations.
    Can someone please explain why the interest on the cost of Debt calculation is (10×0.7)?. I thought that since there are 10% debentures it should have been (10×0.10)?
    Also, on the WACC calculation the MV of Debt is 6.3M, why?
    thank you!

    • @superacca, The interest on 100 nominal is 10 per year, but it is tax allowable at 30% and so the after tax cost to the company is only 70% x 10 = 7 per year.

      The question says that the debentures are quoted at 105 (which means 105 per 100 nominal). So given there are $6M nominal, the market value is $6 x 105/100 = $6.3M

      • @johnmoffat,
        Thank you for the explanation. It makes sense now and was also computed on previous examples, my bad i missed it…..You are a great lecturer and to be honest, its the first time i enjoy watching acca lectures. You also made me laugh at some videos with your comments 馃檪
        Thank you soooo much, i will definately pass with your help!

      • So relieved someone has asked this. I have been wrecking my brain trying to figure out where $6.3m came from. Pheew!! Makes sense. Thank you.

    • @cammielot, The WACC is the overall cost of the finance used in the company.
      The return on assets is an accounting measure and is the profit as a percentage of the total capital (usually at balance sheet value).

  16. An excellent lecture.This lecture explains maybe why some students fail the f9 examination.Because if one relies on the formula used for calculating the WACC and the question deals with redeemable debt one will fail that part of the question and this means losing valuable marks

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