CFAI - Corporate Finance - Reading 20 - EOC #34

CFA Level II Corporate Finance
#1

To calculate the $WACC in this question, it looks like the CFA Curriculum is summing beginning debt and equity. The question is asking for economic profit in year 1 and is using debt and equity totals from year 0. Can someone please confirm for me that $WACC is equal to WACC% multiplied by beginning capital invested? The curriculum seems to be a bit unclear here. Thanks!

#2

My interpretation of EP is the same as yours based on the example in the CFAI text (Granite Corp), which is confirmed by Schweser Notes:

Economic Profit in Year N =

  • NOPAT during Year N
  • (Total Capital at beginning of Year N) x (WACC %)
#3

Thanks for the help!