E&K company has a net book value of $220,000. The company has a 10% cost of capital.
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Question:
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
Fundamentals of Advanced Accounting
ISBN: 978-0077862237
6th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
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