Explain the Basic Assumption That Is Being Made About a fiRm's

question 351

Essay

Explain the basic assumption that is being made about a firm's capital structure when market values
are used in the WACC computation. Why is this considered to be a good assumption?

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Definitions:

GAAP

Generally Accepted Accounting Principles (GAAP) are a set of accounting standards and principles designed to ensure consistency in financial reporting.

Repetitive Basis

A method or process that is regularly repeated in a consistent manner over time, often used to describe routine transactions or operations.

Deferred Charge

An expenditure paid for in one accounting period but reported as an asset because it will provide benefits in future periods.

Sales Tax

A tax imposed by governments on the sale of goods and services, collected by the retailer at the point of sale.