In theory,all three valuation models,when correctly implemented with internally consistent assumptions,will produce the same estimates of value.However,in practice,which of the following errors can result in different value estimates?
A) Incomplete or inconsistent earnings and cash flow forecasts
B) Inconsistent estimates of weighted average costs of capital
C) Incorrect continuing value computations
D) All of these errors result in different value estimates.

Question

Quizplus · Accepted Answer

All of these errors can result in different value estimates when implementing the three valuation models. Incomplete or inconsistent earnings and cash flow forecasts can affect the accuracy of the discounted cash flow model, inconsistent estimates of weighted average costs of capital can affect the accuracy of both the discounted cash flow model and the capital asset pricing model, and incorrect continuing value computations can affect the accuracy of the residual income model. Therefore, all of these errors can lead to different value estimates when implementing the valuation models in practice.

In Theory,all Three Valuation Models,when Correctly Implemented with Internally Consistent