What is typically considered as a part of debt in WACC calculations?

In the context of calculating the Weighted Average Cost of Capital (WACC), debt refers to the capital that a company raises through borrowing and is typically represented by interest-bearing liabilities. Bonds and loans are the key components classified as debt because they require regular interest payments and must be repaid over time, thus representing a financial obligation of the company.

Including bonds and loans in WACC calculations is essential because they directly affect the company's capital structure and financing costs. The cost of debt is also typically lower than the cost of equity because interest payments on debt are tax-deductible, which further influences WACC. Therefore, recognizing bonds and loans as part of debt is critical in accurately calculating a company's WACC and understanding the overall cost of its capital.

Other options, while related to equity and dividend distributions, do not reflect financing obtained through borrowing. Common stock represents ownership in a company, retained earnings are profits reinvested rather than distributed as dividends, and dividends payable are obligations to distribute profits to shareholders, but none of these are considered debt. Thus, the inclusion of bonds and loans as debt in WACC calculations is essential for determining a company's financial leverage and overall cost of capital effectively.