President1988

It's just not the real world of finance. I'll give you another example:

If you were a retail store and you carried a brand of clothing like say Ralph Lauren clothes. And your trade policy w/ Ralph Lauren was that they deliver the inventory on your shelves and you only pay them 30 days after an item sells. Ralph Lauren doesn't require payment until delivery/purchase by your end customer. Is that inventory/asset being financed at the WACC? Absolutely not.

That Ralph Lauren inventory/asset is sitting on your shelves based on an interest free loan from your supplier. And a lot of inventory in the world is financed like this and it's not appropriate to just throw an economic rent/depreciation on it and include it in the economic profit calculation. It's an asset held at a 0% cost of capital, not at the WACC.

I know CFA tries to simplify some concepts, but these calculations just seem wrong to me.