Using NOPAT as 'Income' in the Residual Income Model Is

question 47

True/False

Using NOPAT as 'income' in the residual income model is appropriate because managers do not control the choice of using debt versus equity financing for the assets invested in their division.

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Definitions:

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling over a specific period of time.

CPI

This index reflects the mean shift in costs over time for a collection of consumer goods and services as experienced by urban buyers.

Ear of Corn

An ear of corn is the part of the corn plant that contains the kernels, which are the seeds of the plant, encased in a husk.

Nominal Interest Rate

The interest rate before adjustments for inflation, often reported on a per annum basis.