I know when calculating the WACC for a DCF model usually the cost of equity (in %) is multiplied with the market value of equity, not the book value, right?
But when valuing a stock with the residual income model, usually the cost of equity (in %) is multiplied with the book value of equity. Here is the equation for the residual income model (same as in the image)...
Value (today) = Book Value (totay) + (Earnings for period 1 - (cost of equity x book value of equity)
Can you please tell me, why we use book value of equity here instead of market value, which I think makes more sense?
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