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I’m trying to work through a long question on WACC but I’ve got stuck.
Part of the question involves retained earnings, I’m not sure how to calculate the cost of capital of this?
I’ve tried looking through my notes and google, but no joy on the notes and google just seems to talk about dividends, but aren’t the question includes ordinary shares , would’t the dividend cost be counted there?
Retained earnings are irrelevant when calculating the WACC.
The cost of equity is calculated using the market value of the equity, which effectively already includes the retained earnings – it is the most obvious reason for the market value being higher than the nominal value.Have you watched my free lectures? They are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
Thanks John. I am actually studying with Kaplan so attend their lectures but obviously haven’t understood all the topics thoroughly so will review your lectures too! Thanks for the help.
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