Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital as it applies to capital budgeting?
A) Long-term debt.
B) Common stock.
C) Short-term debt.
D) Preferred stock.
E) All of the above are considered capital components for WACC and capital budgeting purposes.

Question

Quizplus · Accepted Answer

Short-term debt is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting. Only long-term debt, common stock, and preferred stock are considered capital components for WACC and capital budgeting purposes. Short-term debt typically has a lower cost of capital and is used to fund short-term operational needs rather than long-term investments.

Which of the Following Is Not Considered a Capital Component