Economic profit: why not add the current years increase in working capital to calculate $WACC?

[CFACPACFP]

When calculating economic profit, why wouldn’t you add the current years increase in working capital to calculate $WACC?
Instead you only use the balance at the beginning of the year.

 

[panos.kollias]

As far as I understand the $WACC represents the expense paid to the providers of capital.. Why would the change in working capital represent that value?

 

[CFACPACFP]

If the providers of capital have to provide additional money for working capital shouldn’t they be compensated for it?

 

[clip1989]

I was struggling with this as well when calculating invested capital, CFAI EOC using beginning of the year value and not end of the year, and I feel Schweser used end of year

 

[CFACPACFP]

clip1989 wrote:
CFAI EOC using beginning of the year value and not end of the year, and I feel Schweser used end of year

My thoughts exactly

 

[lockheed10023]

Yeah, I’m hoping that NOPAT - $WACC won’t be in an item set. But probably on the exam, if it is, the answers will be ‘close’ enough using both methods, and the other two will be off.

 

[CFACPACFP]

lockheed10023 wrote:
If it is, the answers will be ‘close’ enough using both methods, and the other two will be off.

Unfortunately, I don’t think that’s going to be the case.