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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?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.
thxx 4 zis advice 🙂 in the exams i did not include cost of overdraft in WACC 🙂
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