Which of the following statements is (are) true with respect to the relationship between the various equity valuation models?

I. The residual income model always results in a lower value than the dividend discount model for a firm that has a positive dividend growth rate.
II. The residual model recognizes that the most of the firm's value is captures up front in the form of the firm's current book value.
III. The residual income model generally produces more certain results than the dividend discount model (DDM).
IV. The price-to-book value for a firm will always be greater than one if its return on equity exceeds its required rate of return on equity.

Correct Answer: II, III, IV

I is incorrect because in theory, if the assumption used for both models are consistent, then both models should yield the same results.

II is true because the value of a share under the residual income model is simply the sum of the share's book value plus the present value of all future residual incomes.

III is true because as statement II points out, the residual income model recognizes that the initial book value captures most of the share's market value, whereas the DDM heavily relies on future estimated dividends.

IV is true because if the firm's return on equity exceeds its required rate of return on equity, then the present value of its residual income will be positive, making its value per share greater than its current book value per share.