You cannot use residual valuation model to a firm with negative book value of eq

ID: 2741555 • Letter: Y

Question

You cannot use residual valuation model to a firm with negative book value of equity because:

it gives negative required income and no investor will ever require that.

negative market value of equity.

positive residual income when no investor expects a firm in such bad shape to have that.

the formulas cannot be calculated anymore (undefined values).

it gives negative required income and no investor will ever require that.

negative market value of equity.

positive residual income when no investor expects a firm in such bad shape to have that.

the formulas cannot be calculated anymore (undefined values).

Ans;

it gives negative required income and no investor will ever require that

Explanation;

residual valuation model to a firm with negative book value of equity is it gives negative required income and no investor will ever require that

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