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问题如下：

In regard to the discussion on other approaches between Mendosa and Raman, which of the following statements that they make is most accurate? Statement:

选项：

A.1 B.3 C.2

解释：

Solution

B is correct. Statement 3 by Raman is most accurate. The residual income model, also called the excess earnings method, does not have the same weakness as the FCFE approach, because it is an estimate of the profit of the company after deducting the cost of all capital: debt and equity. Further, it makes no assumptions about future earnings and dividend growth.

A is incorrect. Raman’s statement is incorrect because it is the guideline transactions method (GTM), not GPCM.

C is incorrect. Changing leverage (changing the amount of debt financing in the company’s capital structure), does have some effects on FCFE. An increase in leverage will not affect FCFF (although it might affect the calculations used to arrive at FCFF). An increase in leverage affects FCFE in two ways. In the year the debt is issued, it increases the FCFE by the amount of debt issued. After the debt is issued, FCFE is then reduced by the after-tax interest expense.