Using the value-to-book version of the residual income valuation approach, the value-to-book ratio is determined as a. one plus the present value of future residual ROCE. b. one plus the present value of future comprehensive income divided by book value of common equity. c. book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital. d. market value of common equity plus the present value of expected future residual income. A firm's value-to-book ratio might be greater than 1.0 due to fundamental reasons. An example of a fundamental reason that would cause the value-to-book ratio to increase is a. creating growth in profitable operations that generate ROCE that exceeds RE. b. increasing risk. c. being profitable. d. growth in shareholders' equity by issuing stock.
Using the value-to-book version of the residual income valuation approach, the value-to-book ratio is determined as a. one plus the present value of future residual ROCE. b. one plus the present value of future comprehensive income divided by book value of common equity. c. book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital. d. market value of common equity plus the present value of expected future residual income. A firm's value-to-book ratio might be greater than 1.0 due to fundamental reasons. An example of a fundamental reason that would cause the value-to-book ratio to increase is a. creating growth in profitable operations that generate ROCE that exceeds RE. b. increasing risk. c. being profitable. d. growth in shareholders' equity by issuing stock.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Using the value-to-book version of the residual income valuation approach, the value-to-book ratio is determined as
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A firm's value-to-book ratio might be greater than 1.0 due to fundamental reasons. An example of a fundamental reason that would cause the value-to-book ratio to increase is
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