In some industries,competitive dynamics eventually drive long-run projections of the future returns earned by the firm to an equilibrium level equal to the long-run expected cost of equity capital in the firm.At that point,a firm can be expected to earn ____________ residual income in the future.
A) increasing
B) zero.
C) decreasing
D) There is not enough information to answer this question

Question

Quizplus · Accepted Answer

When a firm's long-run projections of future returns reach an equilibrium level equal to the cost of equity capital, the firm is not expected to earn any excess returns or residual income. Therefore, the answer is B: zero.

In Some Industries,competitive Dynamics Eventually Drive Long-Run Projections of the Future