In Many Cases,using the Residual Income Valuation Model Will Result

question 12

Essay

In many cases,using the residual income valuation model will result in a different value than either the dividend discount model and the free cash flow valuation methods.What are some reasons that the three valuation models would result in inconsistent valuations?

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Definitions:

Cash Account

An account that tracks the amount of cash transactions entering and leaving a business.

Raw Materials

The basic substances in their natural, modified, or semi-processed state used in the production or manufacturing of goods.

Cash Account

A financial account that tracks cash transactions, including both receipts and disbursements.

Direct Labor Costs

Wages and other forms of compensation paid to employees who are directly involved in the production of goods.