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Financial Times Guide to Corporate Valuation, The, 2nd Edition
book

Financial Times Guide to Corporate Valuation, The, 2nd Edition

by David Frykman, Jakob Tolleryd
September 2012
Intermediate to advanced content levelIntermediate to advanced
216 pages
5h 59m
English
FT Publishing International
Content preview from Financial Times Guide to Corporate Valuation, The, 2nd Edition
4
Company valuation – an overview 33
This has the important implication that a company must not only break
even but also make a profit large enough to justify the cost of capital it is
using. Residual income can mathematically be expressed as:
RI = (R
E
– C
E
) × BV
t
where RI is the residual income, R
E
is the return on equity, C
E
is the cost of
equity and BV is the book value of the equity at the beginning of the year t.
A residual income model values a company by using a combination of the
company’s book value and a present value of the company’s future resid-
ual income. It can be expressed as:
Enterprise value = BV + (RI/(1 + C
E
)
1
+ RI/(1+C
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Publisher Resources

ISBN: 9780273729112