EOC Reading 23 Q34 - Assets = Capital?

Economic Profit = EBIT (1-tax rate) - $WACC

And to calculate $WACC, we’ll require to know the amount of capital.

in the financial statements the capital of $200,000 would come from Assets.

I’m trying to understand why Capital = Assets in this case

Thank you

Capital can come from debt or equity. Therefore, assets represent the total capital in the company.

In this case, it also makes sense to understand that WACC recognizes the cost of equity as well as the (after-tax) cost of debt (with the appropriate weightings). It seems fair, then, to say that WACC is another way to look at the cost of assets while accounting for the financing methods (in this case, they want the dollar cost of WACC). This is why you can take the WACC (as a rate) and multiply it by the (total) Capital (assets).

Hope this helps.

thanks tickersu! :slight_smile: