The appropriate discount rate for the residual income model is:
A) weighted average cost of capital.
B) the risk-free interest rate.
C) the risk-free interest rate plus the market premium.
D) cost of common equity capital.

Question

Quizplus · Accepted Answer

The residual income model uses the cost of common equity capital as the discount rate because it measures the income generated above the required return on equity.

The Appropriate Discount Rate for the Residual Income Model Is