Question #74
Reading: Reading 23 Residual Income Valuation
PDF File: Reading 23 Residual Income Valuation.pdf
Page: 35
Status: Unattempted
Correct Answer: B
Question
The single-stage residual income model values a company at:
Answer Choices:
A. book value plus the terminal value discounted at the weighted average cost of capital
B. book value plus the present value of the firm’s expected economic profits
C. book value times a factor determined by the discount rate
Explanation
The single-stage residual income model values a company at book value plus the present
value of the firm's economic profits, or the additional value generated by the firm's ability
to produce returns higher than the cost of equity.