E&K company has a net book value of $220,000. The company has a 10% cost of capital.

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E&K company has a net book value of $220,000. The company has a 10% cost of capital. The firm expects to have profits of $45,000, $40,000 and $35,000 for the next 3 years. The company pays no dividends and depreciation is 5% per year of book value.

a. using the excess earnings model, should the firm be valued at more or less than its book value?

b. What, if anything, are the company's abnormal earnings for the next 3 years?

c. What is your best estimate of the firm's value using the excess earnings model?

Related Book For answer-question

Fundamentals of Advanced Accounting

ISBN: 978-0077862237

6th edition

Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik

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Posted Date: Aug 03, 2018 01:20 AM

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E&K company has a net book value of $220,000. The company has a 10% cost of capital.

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a Using excess earning model firm be valued at more than book value since it ... View the full answer

Fundamentals of Advanced Accounting

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