To implement the residual income valuation model (RIVM), Ohlson (1995) introduces a linear information dynamic (LID) model.

REQUIRED:

(a) Explain the motivation and rationale behind the Ohlson LID model.

(b) Explain how empirical study applies the Ohlson LID model.

(c) Explain any possible reasons why some researchers claim that the Ohlson model undervalues equity shares.

(d) Summarize how the Ohlson model has been extended both in theory and in practice in the last two decades.