Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › BKB Co (December, 2012)
- This topic has 6 replies, 2 voices, and was last updated 5 years ago by John Moffat.
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- July 17, 2019 at 10:34 am #523998
Part (a) of the question
While calculating WACC, the examiner doesn’t take overdraft into the consideration for calculating WACC even though it is a material amount (15 million).
Any specific reason why the examiner didn’t take?Thanks.
July 17, 2019 at 1:59 pm #524036The WACC is looking at long-term capital. Whether or not we include overdrafts in this depends on whether they are intended to remain in the long-term. Here it is not so clear and so you would not lose marks if you had included it in the calculations – as the examiner writes in his answer, it is an assumption – although there would then be a problem as to what cost to use in the calculation.
July 17, 2019 at 2:39 pm #524045Oh ok, Got it Sir. Thank you so much
July 17, 2019 at 2:55 pm #524049If suppose we include the overdraft, then should we take 6% and multiply it with (1-30%) to get after tax cost of debt(overdraft)?
July 17, 2019 at 4:14 pm #524062Yes – that is correct (but you should then write a note about the fact that the interest rate is likely to change in the future) 🙂
July 17, 2019 at 5:58 pm #524080Thank you so much Sir.
July 17, 2019 at 6:44 pm #524085You are welcome 🙂
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