final question, Kim’s supervisor asks him why he prefers the residual income model to other approaches.
Q. Which of the following is the most appropriate response Kim can make to his supervisor’s final question?
- The analyst need not adjust the book value of common equity for non-recurring items.
- The analyst need not adjust book value of common equity for off-balance-sheet items.
- The interest expense in the residual income model correctly captures the cost of debt capital.
Solution
A is correct. Although it is important to adjust income for non-recurring items, these adjustments do not need to be made to the book value because they are already reflected in the value of the assets.
请问第一个选项是什么意思，答案没看明白，另外可否解释下RI计算过程都要对哪些book value进行调整？
