Residual NI Model Flashcards
1
Q
PV of Residual Income
V (Equity)
A
(ππΌ_π‘ - {r x γπ΅ππΈγ_(π‘β1) }) / (1+π)^π‘ + (Terminal Value of RI)
2
Q
BVE
A
Book Equity = Assets - Liabilities
3
Q
Terminal Value of Residual Income
A
(Base TV of RI) / (1 + r)^{T - 1}
4
Q
Base Terminal Value of RI
A
(ππΌ_π - {r x γπ΅ππΈγ_(πβ1) }) / (πβπ)Μ
T = Terminal period g = perpetual growth rate
5
Q
Required NI
A
(BVE_T-1 x CoE)
6
Q
CoE
A
Cost of Equity
7
Q
Abnormal Earnings
A
NI - (BVE x CoE)
(BVE x CoE) = Required NI
8
Q
Market Value / Book Value (BVE)
M / B
P / B
A
[(BVE) + PV of RI] / BVE PV of RI = V (E) Book Value (BVE) = Assets - Liabilities
9
Q
Market Value
A
[(BVE) + PV of RI]
PV of RI = V (E)
