土豆妮

A use of the residual income (RI) valuation approach is:

A) deferring value more than in competing valuation approaches.

B) providing more reliable estimates of terminal value.

C) providing a check of consistency between competing approaches like free cash flow of equity (FCFE) and dividend discount model (DDM) .

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A RI model can be used along with other models to assess the consistency of results. FCFE and DDM models forecast future cash flows while RI models start with a balance sheet measure of equity and add the present value of expected future RI.

土豆妮

An argument for 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) reliance on accounting data requires numerous and significant adjustments.

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

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Terminal value does not dominate total present value as is the case in dividend and free cash flow valuation models. Both remaining responses are arguments against using the RI approach.

土豆妮

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

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

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

C) the clean surplus relation fails to hold.

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The models focus on economic rather than just on accounting profitability. Both remaining responses are arguments against using the RI approach.