Explanation

In a single-stage residual income model, the value of a company is calculated as:

Value = Book Value + Present Value of Expected Residual Income

Where:

• Book Value represents the current accounting value of equity
• Residual Income (also called economic profit) = Net Income - (Cost of Equity × Book Value)

This approach values a company based on its current book value plus the present value of future economic profits above the required return on equity.

Option A is incorrect because replacement cost relates to asset-based valuation, not residual income. Option B is incorrect because it describes the dividend discount model, not the residual income model. Option C is correct as it accurately describes the single-stage residual income model formula.