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Why is Retained Earnings not included as a part of Equity in the calculation of WACC ?
Can someone please explain this to me clearly.
In the question that i am doing, ordinary shares are included, preference shares are included but retained earnings are not included in the calculation. Why is that?
Welcome to the Opentuition forums. Usually market value or some estimate of what market value would be is used in this calculation. Since this is the case, the value of retained earnings has already been taken into account in existing figure. Trying to include them would be double counting. Hope this helps.