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.
There is some discussion on whether Multinational Corporations (MNC's) enhance risk when borrowing foreign currencies. Those in favor of borrowing state that lower costs of financi
Define in the Modigliani-Miller equation (MM equation), why is the market value of the levered firm greater as compared to the market value of an equivalent unlevered firm? Th
how would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit?
Role of Sponsor In the establishment of mutual fund trust, the main role is played by the sponsors. Both the trustees and the fund managers or the asset management company have
Why is the coefficient of variation a better risk calculates to use than the standard deviation while evaluating the risk of capital budgeting projects? The coefficient of variat
What is the Objectives of Working Capital Management? Describe please.
How is the failure Table for assets that fail suddenly constructed?
What are some of the primary advantages when a corporation has operations in countries other than its home country? What are some of the risks? Foreign operations may decrease
Suppose the demand for bananas increases. Explain how the price of bananas adjusts after the increase in demand. If the demand for bananas rises, a shortage is made at the origin
Using details from table 8, let us compute the 6-month forward rate. Simple arbitrage principle, like the one used to compute the spot rates are used in this proc
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