The Equity Value Can Be Estimated by Subtracting Debt Service

question 16

True/False

The equity value can be estimated by subtracting debt service from net operating income and dividing this amount by the equity dividend rate.

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Definitions:

Operating Assets

Assets that are used by a company in its daily operations to generate revenue, excluding any investment or non-operational assets.

Net Operating Income

The profit derived from a company's regular business activities, excluding deductions of interest and taxes.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments.

Residual Income

The net income an investment or business venture generates above the minimum rate of return.