Financial practitioners include short-term debt in WACC calculations:
I. If the short-term debt is at least 10% of total liabilities
II. If the short-term debt is at least 10% of the total assets
III. If the net working capital is negative
IV. If the net working capital is positive
A) I and IV only
B) I and III only
C) II and IV only
D) II and III only

Question

Quizplus · Accepted Answer

Short-term debt should be included in WACC calculations if it is at least 10% of total liabilities, which is option I. Additionally, it should be included if net working capital is negative, which is option III. Option II is incorrect because the percentage of short-term debt to total assets is not relevant in determining whether it should be included in WACC calculations. Option IV is not a sufficient condition for including short-term debt in WACC calculations as it does not factor in the size of the short-term debt in relation to total liabilities or net working capital.

Financial Practitioners Include Short-Term Debt in WACC Calculations