Not sure if anyone ever confuse or doubt about the difference of Residual income between Equity valuation and Corp Finance. * According to Equity: Residual income1 = NI - ks * Equity at time t-1 --> later discounted @ ks Residual income2 = NOPAT(t) - %WACC * Invested capital (t-1)–>ater discounted @ WACC * However, according to Capital Budgeting, there’s only one way to define residual income Residual income1 = NI - ks * Equity at time t-1 There’s no Residual income2, instead it is called Economic profit (EP) with the exact same formula, and it’s stated very clearly in CFAI book “The EP approach is from the perspective of all suppliers of capital, EP is discounted @ the overall WACC. The residual income approach takes the perspective of equity investors, so residual income is discounted @ the cost of equity” Anyone here can help me to explain why CFAI do that? Not consistent in giving a name… Sigh…