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.
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 a
Putable bonds can be redeemed prior to maturity at the initiative of the bondholder. These bonds are more advantageous to the investors as they get an opportunity to re
Explain the effect of different dividend policies on the value of share respectively as per the walter model in Case 1: Dividend payout ratio is 50% Case 2: Dividend payout ratio
Method to Assess the Neurological Status: World Health Organization (WHO) define Stroke as interruption of the blood supply to the brain, the effects of a stroke depend on whi
The coupon rate of these types of bonds is adjusted periodically at a fixed margin over a reference rate. It can be adjusted southward only and once it is adjuste
Segment Margin This is the amount in which a business segment in a company contributes toward the common or indirect cost of the company. Therefore, it represents that segment'
Preferred Stock This is a category of capital stock that will gives its holders preference over common stockholders in the distribution of earnings or rights to the assets o
For what kinds of needs do you think a firm would issue securities in the money market versus the capital market?
exercise
QUESTION 1 (a) What are the differences between futures and forwards? (b) Clearly explain the following position on options i) Going long on a call option ii) Going lo
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