1．A common assumption regarding continuing residual income (RI) is that RI:

A)   falls to the average industry level.

B)   declines to zero as return on equity (ROE) drops to the cost of equity over time.

C)   manifests a generally increasing trend indefinitely.

D)   becomes negative.

2．Continuing residual income is defined as the:

A)   residual income that is expected beyond the initial forecast time horizon.

B)   residual income that forces the net present value to zero.

C)   permanent as opposed to the transitory part of residual income.

D)   core element of residual income.

答案和详解如下：

1．A common assumption regarding continuing residual income (RI) is that RI:

A)   falls to the average industry level.

B)   declines to zero as return on equity (ROE) drops to the cost of equity over time.

C)   manifests a generally increasing trend indefinitely.

D)   becomes negative.

The correct answer was B)

It is common to assume that RI declines to zero as ROE drops to the cost of equity over time. Other assumptions analysts may make include assuming RI is zero from the terminal year onward, RI continues indefinitely at a positive level, or RI reflects a decline in ROE to a long-run average level.

2．Continuing residual income is defined as the:

A)   residual income that is expected beyond the initial forecast time horizon.

B)   residual income that forces the net present value to zero.

C)   permanent as opposed to the transitory part of residual income.

D)   core element of residual income.

The correct answer was A)

Continuing residual income is defined as the residual income that is expected beyond the initial forecast time horizon. It comes into play when RI is forecast for a defined time horizon and a terminal value based on continuing RI is estimated at the end of that time frame.