The WACC is used primarily for making long-term capital investment decisions, i.e., for capital budgeting.Thus, the WACC should include the types of capital used to pay for long-term assets, and this is typically long-term debt, preferred stock (if used), and common stock. Short-term sources of capital consist of (1) spontaneous, noninterest-bearing liabilities such as accounts payable and accrued liabilities and (2) short-terminterest-bearing debt, such as notes payable. If the firm uses short-term interest-bearing debt to acquire fixedassets rather than just to finance working capital needs, then the WACC should include a short-term debtcomponent. Noninterest-bearing debt is generally not included in the cost of capital estimate because thesefunds are netted out when determining investment needs, that is, net operating rather than gross operatingworking capital is included in capital expenditures.