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WACC

Mmansi13y ago
hi,i would like 2 know whether we should include only long term loan in the formula of waac? should cost of overdrafts be ignored just like in june 2010 qu 2?
in the formula of gearing,should we also ignore short term debts?
John MoffatJohn MoffatTutor13y ago#1
It really depends on whether the company intends to keep the overdraft in the long term (even though overdrafts are always shown in the Statement of Financial Position as current liabilities).

For WACC we always assume the overdraft is just short-term and we ignore it.

However for the gearing ratio, although we usually ignore it, if it seemed that it was intended for the long term then we would include it.
Mmansi13y ago#2
thx 4 helping me, i was quite confused wen i atempted that question
John MoffatJohn MoffatTutor13y ago#3
You are welcome :)
Mmansi13y ago#4
thxx 4 zis advice :) in the exams i did not include cost of overdraft in WACC :)
John MoffatJohn MoffatTutor13y ago#5
Thats OK :)
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