Question #40
Reading: Reading 23 Residual Income Valuation
PDF File: Reading 23 Residual Income Valuation.pdf
Page: 22
Status: Unattempted
Correct Answer: A
Question
An argument for using the residual income (RI) valuation approach is that:
Answer Choices:
A. the models focus on economic rather than just on accounting profitability
B. the clean surplus relation fails to hold
C. the models rely on accounting data that can be manipulated by management
Explanation
The models focus on economic rather than just on accounting profitability. Both remaining
responses are arguments against using the RI approach.