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1. A valuation that simply capitalizes a forecast of operating income for the next year implicitly assumes that residual operating income will continue as a perpetuity. Is this correct?
2. An analyst forecasts the next year's core operating income for a firm will be the same as the current year's core operating income. Under what conditions is this a good forecast?
Explanation & Answer
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Question 1
It is correct to say that a valuation that capitalizes a forecast of operating income for the next year
assumes that the residual operating...
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