Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Useful Information

Financial Accounting

1. Introduction to Accounting

Useful Information

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Multiple Choice

Which of the following are components used in the construction of the Weighted Average Cost of Capital (WACC)?

Net income and retained earnings

Cost of equity, cost of debt, and their respective proportions in the capital structure

Total revenue and total expenses

Inventory turnover and accounts receivable turnover

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Verified step by step guidance

Understand the concept of Weighted Average Cost of Capital (WACC). WACC is the average rate of return a company is expected to pay its investors (both equity and debt holders) to finance its assets. It is calculated by weighting the cost of equity and cost of debt based on their proportions in the company's capital structure.

Identify the components of WACC. The key components are: (1) Cost of equity, which represents the return required by equity investors, (2) Cost of debt, which represents the effective interest rate paid by the company on its debt, and (3) The respective proportions of equity and debt in the company's capital structure.

Exclude irrelevant options. Net income and retained earnings, total revenue and total expenses, and inventory turnover and accounts receivable turnover are not components of WACC. These are financial metrics used for other purposes, such as profitability analysis or operational efficiency.

Recognize that the correct components are cost of equity, cost of debt, and their respective proportions in the capital structure. These are directly tied to the calculation of WACC and reflect the company's financing costs.

To calculate WACC, use the formula: \( WACC = \left( \frac{E}{V} \times Re \right) + \left( \frac{D}{V} \times Rd \times (1 - Tc) \right) \), where \( E \) is the market value of equity, \( D \) is the market value of debt, \( V \) is the total value of capital (equity + debt), \( Re \) is the cost of equity, \( Rd \) is the cost of debt, and \( Tc \) is the corporate tax rate.