Question #63
Reading: Reading 23 Residual Income Valuation
PDF File: Reading 23 Residual Income Valuation.pdf
Page: 31
Status: Unattempted
Correct Answer: B
Question
An argument against 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 models rely on accounting data that can be manipulated by management
C. terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models
Explanation
An argument against using the RI approach is that the models rely on accounting data that
can be manipulated by management. Both remaining responses are arguments in favor of
the approach.