Average Outstanding Balance

Categories: Accounting

What you owe. If it's a high number, it doesn't feel all that "outstanding."

Related or Semi-related Video

Finance: What is a WACC Model?18 Views

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Finance allah shmoop What is a lack model That's whack

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Yeah it is people We had to go there once

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okay we're done Quack stands for weighted average cost of

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capital and whoa yeah that's a mouthful heavy term but

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the concept's pretty simple All right Well let's say you

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run the famed charcoal smoker producer grills grills grills or

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grilles Cubed is matthew people like you said and you

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want to buy We've got gas The finest purveyor of

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propane grills on the market which will help grills Grilled

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grills rule the outdoor barbecue market no matter what their

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customers Fuel of choices Well you need to borrow a

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ton of money to buy out your competitors A billion

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dollars worth of borrow in fact it's so much dough

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that you have to borrow it from three different places

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Well the money you're borrowing is the capital You need

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to buy your target We've got gas That's your target

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Okay capital c and wacker at least one Well the

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bank demands that the bank comes first in priority Should

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things you know go awry and you go the b

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word Yeah Bankruptcy We we don't like to say that

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too loudly Run banks Okay well the bank will loan

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you two hundred million dollars and we'll charge you five

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percent interest on that money That five percent is your

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cost of capital from that bank lender for funding round

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number two while you turned a sweet and beatrix who

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in addition to being a killer grill meister in her

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own right Well she also happens to be loaded So

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anti b agrees to loan you the second traunch of

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money and we'll come in second in priority behind the

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bank in collecting her dough Should you know the b

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word happened She'll own you seven hundred million at seven

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percent interest Great So now you only have to raise

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your last hundred million box and it has to come

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third in the priority stack up of collecting Should things

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go you know awry With no other options you hit

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up tony mafia ony the shadiest loan shark on either

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side of the mason dixon So you pay your respects

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you know just the glove with tongue and things get

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a little weird But somehow at the end of the

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day you walk away from tony's headquarters with a wallet

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full of cash as your stomach is full of non

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amalfi onis sunday raghu what That last hundred million box

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comes with a very high interest price Twelve percent So

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when the tony notes ironically that quack is the same

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noise that baseball bats make when they hit knees when

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will you pay attention And you do the math keenly

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aware that the waiting's here are very different looks like

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this and that the huge middle traunch of seven hundred

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mil it's seven percent has the biggest effect on your

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cost of capital because well it's a big fat seventy

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percent of the total amount you're borrowing Well the first

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two hundred mill is cheap at five percent and it

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costs you ten million bucks here to rent that money

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The second trunk of seven hundred million is kind of

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sort of mad sheepish at seven percent and it costs

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forty nine mil a year to rent and that last

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traunch of one hundred mil is super expensive for what

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you're getting costing you twelve million a year to rent

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So you add up the capital rental costs of ten

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plus forty nine plus twelve and you get seventy one

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million box to rent a billion dollars for this transaction

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that seventy one mil to rent a bill and pay

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that runs So what is your whack or weighted average

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cost of capital Well seventy one million over a billion

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or seven point one Percent The black models always percentage

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Some companies will use their stock to buy a competitor

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er rather than using cash But that's not always the

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case and calculating the cost of equity is way more

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complex and involves a lot more smoke and or mirrors

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So we're just doing debt here people and there you

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have it Whack in a nutshell But you know what's

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not whack shmoop snu finance themed hip hop album on

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sale soon coming soon to a itunes thinking you're you 00:04:04.93 --> [endTime] yeah we'll eat your heart out there hamilton

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