Question #72
Reading: Reading 23 Residual Income Valuation
PDF File: Reading 23 Residual Income Valuation.pdf
Page: 34
Status: Unattempted
Correct Answer: A
Question
If a multistage residual income model incorporates a persistence factor of zero, the analyst is most likely assuming that residual income will:
Answer Choices:
A. persist at the current level forever
B. fall to zero immediately
C. decline to zero over time
Explanation
A persistence factor of zero is used when residual income is expected to drop immediately
to zero. A persistence factor of one is used when residual income is expected to persist at
the current level forever. A persistence factor between zero and one is used when residual
income is expected to decline over time.