Residual Income Is The

question 6

Multiple Choice

Residual income is the:

• A) difference between the net sales that the analyst expects the firm to generate and the required earnings of the firm.
• B) difference between the net income that the analyst expects the firm to generate and the required earnings of the firm.
• C) difference between the common stock that the analyst expects the firm to issue and the required earnings of the firm.
• D) difference between the expenses that the analyst expects the firm to generate and the required earnings of the firm.

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Definitions:

Hindsight Bias

The tendency to believe, after learning an outcome, that one would have foreseen it, known also as the "I-knew-it-all-along" effect.

Confirmation Bias

The tendency to favor, interpret, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Representativeness Heuristic

A cognitive shortcut that involves judging the probability of an event by its similarity to a prototype or an example that comes to mind, rather than on objective probability.

Availability Heuristic

A mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method, or decision.