Project Description:

In my book I am asked to calculate the cost of financing and the weighted average cost of capital. The business this is about, wants to expand their operations by means of share capital, mortgage, line of credit and trade payables. The solution suggests to calculate the cost of financing by considering all 4 sources, but the cost of capital by considering only share capital and mortgage. Why are Line of credit and trade payables not part of the cost of capital? With trade payables, I am assuming, debt that the business is supposed to pay is paid later, freeing up money. This was, it makes sense not considering this capital but why is the moneys that come from a line of credit not capital? (if this helps, the question is the problem solving example 1.3 out of bergeron's finance for non-financial managers.

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cost of capital is different from trade credit are two different things cost of capital is invested ... View the full answer