dear friends, I did not get how premium over book balue helps us compute values in residual income model. thanks
I think you should be a bit more specific.
It’s used only for the terminal value.
Say, after 5 years you expect that the stock value will be worth 1.5 × book value. Then you project book value 5 years from now, multiply by 1.5, and that’s the terminal value for the stock.