In what situation should short-term debt or notes payable be included as part of the cost...

In what situation should short-term debt or notes payable be included as part of the cost of debt when calculating the WACC?

Expert Solution

The WACC is the overall cost of raising funds that will fund a long-term capital intensive project like business expansion, acquisitions and mergers, purchase of machinery, etc. The main reason for not considering short-term debt and notes payables under the caculation of WACC is that these short-term sources of funds are used in the working capital management. These does not fund the long-term capital projects.

In what situation should short-term debt be included in cost of debt under WACC?

The short-term debts and the notes payables can be considered in the cost of debt while calculating the weighted average cost (WACC) only if such short-term funds are used in the long-term capital intensive projects. In other words, if the funds obtained from short-term debts are usd in the long-term projects and investments, in such situation we should consider the short-term debt as a part of cost of debt under WACC calculation.

jeff jeffy answered 2 years ago

If a short-term note payable is included in the accounts payable balance on the financial statements,...

If a short-term note payable is included in the accounts payable balance on the financial statements, there is a violation of which of the following balance-related management assertions and the corresponding auditor objectives: A. Completeness assertion and Completeness objective. B. Valuation and Allocation assertion and Cutoff objective. C. Valuation and Allocation assertion and Accuracy objective. D. Valuation and Allocation assertion and Classification objective.

1) If a notes payable is reclassified from a long-term liability to a short-term liability, then...

1) If a notes payable is reclassified from a long-term liability to a short-term liability, then A The amount of total liabilities stays the same B The total liabilities increase C Current liabilities decrease D Long-term liabilities decrease 2) On October 1, 2025, Conway, Inc. borrowed $300,000 by signing a nine-month, 6% note payable. Interest was accrued on December 31, 2025. What is the journal entry on July 1, 2026, the date the note was paid? 3) Jackson Company pays...

Question 1 For many companies, current liabilities include accounts payable interest payable short-term notes payable all...

Question 1 For many companies, current liabilities include accounts payable interest payable short-term notes payable all of the above Question 2 A company issues a $15,000, 5.5% note due in 90-days. How much interest will be due at maturity? (Use a 360-day year. Round answers to two decimal places.) $825.00 $206.25 none of the above Question 4 See the previous question. On August 30, the due date of the account payable, what entry would our company make if they paid...

Cash $30,000 Accounts receivable 63,800 Accounts payable 52,500 Short-term notes payable 11,000 Inventories 66,000 Gross fixed...

Cash $30,000 Accounts receivable 63,800 Accounts payable 52,500 Short-term notes payable 11,000 Inventories 66,000 Gross fixed assets 1,061,000 Accumulated depreciation 86,000 Long-term debt 210,000 Common stock 480,000 Other assets 25,000 Retained earnings ? Complete the part of the common-sized balance sheet below. (Round to one decimal place. NOTE: Input the Accumulated depreciation account as a negative value.) Common-sized Balance Sheet ASSETS Cash $ 30,000 % Accounts receivable 63,800 Inventories 66,000 Total current assets $ 159,800 % Gross fixed assets $...

Question 1: Short-term Notes Payable On October 1, 2019, ABC Company borrowed $100,000 cash on a...

Question 1: Short-term Notes Payable On October 1, 2019, ABC Company borrowed $100,000 cash on a 6-month note payable. The annual interest rate is 12 percent. The principal and all the interests were paid by ABC at the maturity date, March 31, 2020. What is the journal entry to be recorded for ABC on December 31, 2019? Question 2: Stock Repurchase and Reissuance On December 3, 2019, ABC Company reissued 10,000 shares of the treasury stock at $40 per share....

What is the difference between short-term debt and long-term debt? Describe in detail how debt relates...

What is the difference between short-term debt and long-term debt? Describe in detail how debt relates to financial management

What should be included on spreadsheets and in accounts payable reports that are prepared for ratification...

What should be included on spreadsheets and in accounts payable reports that are prepared for ratification by management? List seven features.

I. Cost of Debt Type of Debt Amount ($million) Weight Interest rate (%) Short-term debt US$...

I. Cost of Debt Type of Debt Amount ($million) Weight Interest rate (%) Short-term debt US$ 13,600 11.27% Existing long-term debt US$ 5,262 9.75% Sub. Increasing-rate notes (Class I) US$ 1,250 13.00% Sub. Increasing-rate notes (Class II) US$ 3,750 14.00% Senior convertible debentures US$ 1,800 14.50% Partnership debt securities US$ 500 11.20% Total US$ 26,162 After-tax cost of debt (tax rate @35.5%)

outline the advantages of using short term debt as opposed to long term debt in the...

outline the advantages of using short term debt as opposed to long term debt in the financing of working capital. support with references

Required information Problem 9-1A Short-term notes payable transactions and entries LO P1 [The following information applies...

Required information Problem 9-1A Short-term notes payable transactions and entries LO P1 [The following information applies to the questions displayed below.] Tyrell Co. entered into the following transactions involving short-term liabilities. Year 1 Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms n/30. May 19 Replaced the April 20 account payable to Locust with a 90-day, 10%, $35,000 note payable along with paying $5,250 in cash. July 8 Borrowed $80,000 cash from NBR Bank by signing a 120-day,...

Question