Abstract

http://ssrn.com/abstract=1492062
 


 



Reconciliation of Residual Income and Free Cash-Flow Valuation Models


Raphael Kahan


affiliation not provided to SSRN

May 21, 2009


Abstract:     
Ohlson & Juettner-Naworth (2005) show, using a “scheme” developed in Ohlson 1998, 2000, that one can derive the residual income model from the discounted dividend model. However, their method involves the condition that an infinite sum (book value per share) divided by the infinite sum of discount factors will converge towards zero (“mild transversality condition”). Mathematically this needs not be the case as infinity divided by infinity is indeterminate. The following presents two reconciliation methods which are free from the convergence assumption.

Number of Pages in PDF File: 1

Keywords: Residual income, free cash flow, mild transversality

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Date posted: October 24, 2009  

Suggested Citation

Kahan, Raphael, Reconciliation of Residual Income and Free Cash-Flow Valuation Models (May 21, 2009). Available at SSRN: http://ssrn.com/abstract=1492062 or http://dx.doi.org/10.2139/ssrn.1492062

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Raphael Kahan (Contact Author)
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