Question
Which of the following is true about the residual income model: a. The residual income model provides more accurate valuations than the cash flow-based model
Which of the following is true about the residual income model:
a. The residual income model provides more accurate valuations than the cash flow-based model when liabilities exceed assets because residual income model explicitly adjusts for the fact that these liabilities will eventually have to be paid off with assets.
b. The value from the residual income model will match the value from a cash flow-based model only if we assume the other comprehensive income items to be zero for the company we are valuing.
c. Unlike the cash flow and dividend-based models, the residual income model requires an end point because if we assume a companys earnings grow forever, the calculated value of the stock will go to infinity.
d. The residual income model will always value a stock higher than its book value per share as long as comprehensive income is positive.
e. None of the above are true
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