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LOS e: Explain the relationship between residual income valuation and the justified price-to-book ratio based on forecasted fundamentals.
Q1. In a single-stage residual income model for a firm with return on equity (ROE) greater than the required rate of return, which statement is least accurate?
A) Market value will be greater than book value.
B) Free cash flow to equity will be positive.
C) The justified price-to-book value (P/B) ratio will be greater than one.
Q2. Among the various price multiples, the residual income model is most closely linked to which of the following?
A) Price to book value (P/B).
B) Price to free cash flow (P/FCF).
C) Price to earnings (P/E).
Q3. Assuming that the growth rate is less than the required rate of return (r), a decrease in initial book value will cause value in a residual income (RI) model to:
A) increase.
B) decrease.
C) there is insufficient information to determine the effect on RI. | 
发表于 2009-3-9 17:58
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