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Why Is the Weighted Average Cost of Capital Not Used

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Why is the weighted average cost of capital not used as the discount rate when computing residual income?


Definitions:

Function

The specific purpose or activity for which something is used or designed to do.

Partnerships

A business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement.

Competent Manager

An individual who possesses the necessary skills, knowledge, and experience to effectively direct and control business operations.

Previous Business Success

The accomplishments and positive outcomes achieved by a business in its past operations, often used to gauge potential for future success.

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