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CFAI Practice questions: Equity Miranda Mendosa Case Scenario, Question 5

Is the statement related to Residual Income valuation correct?

Residual income takes out the equity charge. Here they’re saying Residual Income is the estimate of the profit of the company after deducting the cost of all capital (debt and equity).

halp!

 

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I guess it makes sense after running into a similar question. The cost of debt is assumed to be covered by interest payments, so yea…

Tactics wrote:

I guess it makes sense after running into a similar question. The cost of debt is assumed to be covered by interest payments, so yea…

i agree.