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
Q. Computation of the cost of capital? Computation of overall cost of capital of the firm invoices Cost of debts: debt may be issued at par , at premium or discount it may
How does accounts receivable factoring work? What are the benefits to the two parties involved? What are the risks? Factoring is while one firm sells accounts receivable that i
Question. 1 Using D to assess the interest rate risk of a financial institution's balance sheet Background: Point 1. A business is 'insolvent' when it has negative eq
Question 1 Insurance is protection against possible financial loss. Explain life insurance in detail Question 2 Mutual funds are a composite of stocks, bonds, and securities,
Business forecasting menaing
using the operating cycle and any other financial management knoweledge,dicuss the applicability of such a cycle to the poultry biussiness in uganda (consider broilers)
Define the term in brief -Called-up share capital Called-up share capital that you may find in some of balance sheets. It refers to that part of subscribed capital, which share
Beta Value Risk is an important consideration while investing in any security. It is the possibility that realised returns will be less than the returns expected. The degree, t
It's a small amount of money which is used for initial market research or product development for a new venture.
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