Calculate WACC with no debt. But, what about Current Liabilities?

CFA Level I Corporate Finance
#1

Hey guys.

I’m studying Corporate Finance and I’m thinking about this problem.

Say, a company has 0 debt, no bonds, they borrow nothing… so, we will calculate WACC = (E/V) x Re right?

But, they have current liabilities. So what now? E/V = E / (Equity + current liabilities) ? Or something?

#2

When we say capital then it could be from debt, common equity and preferred shares. Non intetest bearing liabilities including current liabilities such accounts payable is just accounting accruals not counted towards capital.

#3

Thank you. :+1:

#4

Think about it this way. Current liabilities (eg, accounts payable, accrued expenses) for the most part are not a source of long-term sources of capital (long term financing). They’re considered working capital as a part of operations and not as a source of external funding (financing). Accounts payable for example, is generated as a part of normal business operating activities, and not as a part of a financing decision.