Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Abnormal Earnings Valuation Model
Abnormal Earnings Valuation Model is a method to analyse the value of the firm. The value of the firm can be the sum of three components - the original invested capital, the normal rate of return and the abnormal return on invested capital. The equity value of the firm is given as
BV0 + S AEt/(1+r)t
where BVt = Book value of equity at beginning of year t
r = Cost of equity capital
AEt = Expected value of abnormal earnings in year t
= Projected earnings in yr t -(r * BV of equity at beginning of year t)
This model is basically a rearrangement of the DCF model. It combines "current value" on the balance sheet with the present value of future "abnormal earnings". It has a few advantages over DCF, the first being its simplicity due to the forecasting of the accounting variables. The terminal value represents only a stream of abnormal earnings beyond the forecast horizon as compared to the forecast of cash flows in the DCF model.
This method does have some shortcomings. It is dependent on the initial book value, BV0. Also, the book value fails to account for certain assets that do not generate cash flows. Things like patents, trademarks etc are not accounted for and they may cause the abnormal earnings to persist. Also, the option to back out of a project/business is not included.
Swap-Linked Notes: Interest rate swaps are derivative products which help in transforming the cash flows of existing debt issues. These are not only useful in covering the exis
Why is it important to study international financial management? Answer: We are now living in a world in which all the main economic functions, that are production, consumption,
What is the most conservative type of working capital financing plan a company could implement? Explain. An all equity capital structure would be the mainly conservative type
Q. Determine Cost of redeemable Debt? Cost of redeemable Debt: - Usually a company issues a debt which is redeemable subsequent to a certain period during its life-time. Such a
Why is the replacement value of assets method not usually used to value complete businesses? The replacement value of assets process is not often applied to complete business v
Setting Budget Goals and Objectives: Having collected and analysed all relevant information, and made general forecasts as to the key areas of concern / opportunity and special
Working capital cycle for a trade Inventories days (time inventories are held before being sold) Plus Trade receivables days (how long
formulae required to calculate
How can funds be raised Funds are raised from financial markets. Financial markets is a general term used todenote markets where financial securities are teat. These markets in
Rating denote an issuer's ability to respond to adverse changes in circumstances and economic conditions. The rating scale is generally differentiated into variou
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd