土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

B) the models rely on accounting data that can be manipulated by management.

C) the models focus on economic rather than just on accounting profitability.

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An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

B) the models focus on economic rather than just on accounting profitability.

C) the models rely on accounting data that can be manipulated by management.

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An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

B) the models focus on economic rather than just on accounting profitability.

C) the models rely on accounting data that can be manipulated by management.

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An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) the models rely on accounting data that can be manipulated by management.

B) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

C) the models focus on economic rather than just on accounting profitability.

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An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

B) the models focus on economic rather than just on accounting profitability.

C) the models rely on accounting data that can be manipulated by management.

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An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

B) the models rely on accounting data that can be manipulated by management.

C) the models focus on economic rather than just on accounting profitability.

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An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) the models rely on accounting data that can be manipulated by management.

B) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

C) the models focus on economic rather than just on accounting profitability.

---

An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

An argument against using the residual income (RI) valuation approach is that:

A) terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models.

B) the models focus on economic rather than just on accounting profitability.

C) the models rely on accounting data that can be manipulated by management.

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An argument against using the RI approach is that the models rely on accounting data that can be manipulated by management. Both remaining responses are arguments in favor of the approach.

土豆妮

Which description of the relationship among residual income, dividend discount (DDM) and free cash flow to equity (FCFE) models is least accurate?

A) Residual income differs from DDM and FCFE in that residual income starts with book value.

B) The different models should result in different intrinsic values because of the theoretical differences in the models.

C) Residual income differs from DDM and FCFE in that it discounts income rather than cash.

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The three models should all produce the same intrinsic value as long as the underlying assumptions are the same. The differences in intrinsic values arise from difficulty in estimating the inputs, not from theoretical differences in the models. Since they should produce the same results, they can be used to assess consistency. Residual income differs from DDM and FCFE in the use of accounting assumptions, including book value and discounting income.

土豆妮

Which statement best describes the relationship between the residual income model and the free cash flow to equity model?

A) They do not rely on accounting assumptions.

B) Intrinsic value calculated by both should be the same if the assumptions are the same.

C) They both discount a future stream of cash flows.

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Theoretically the intrinsic value calculated by both should be the same, but since they use different approaches the values are often different in practice. Residual income relies on book value and discounts income, not cash flow.