Tutor profile: Valeriya B.

Describe WACC and it's components

WACC stands for weighted average cost of capital. It's used as a discount rate in order to bring future cash flows of a firm to their present value. The components of WACC are debt, common equity, and preferred equity. WACC is calculated as cost of debt*weight of debt (percentage of debt in the capital structure of the company)*(1-tax rate)+cost of common equity*weight of common equity + cost of preferred equity*weight of preferred equity.

What is efficient market theory?

Efficient market theory states that all known information is incorporated in the market and that it is impossible for an investor to generate consistent alpha within the market. The only way for investors to generate higher returns is by taking on higher level of risks. According to this view, it is impossible for investors to outperform the market by trying to select under/over valued stocks.

What is the difference between accounts payable and accounts receivable?

Accounts payable is what the company owes to suppliers that it had purchased on credit. It's the money that the company owes and is listed under current liabilities on the balance sheet. Accounts receivables is the money that is owed to the company by the clients/customers. It's the money that the company will receive in the future and is listed under current assets.