Stmt1: RI is positive and continues at the same level year after year Stmt2: As ROE = r, RI tends to zero Stmt3: RI growth declines over time and eventually reaches zero. Which of the statements is least accurate. According to me it is 1 but answer says 3.
3 is correct. Usually as a company matures or is in a mature industry its ROE returns to its expected rate of return , gradually . At this point it is only making enough to satisfy the rate of return of the equity investors and has no residual income .
RI declines over time and eventually reaches zero. (not RI growth)