As discussed in the chapter, abnormal earnings (AE) are

AE_t = X_t (r_e BV_t1)

where X_t is the firms net income, r_e is the cost of equity capital, and BV_t-1 is the book value of equity at t 1.

Following are X_t, BV_t-1, and r_e for two firms.

Company A	2013			2014			2015			2016			2017
Xt	$	66,920		$	79,632		$	83,314		$	89,920		$	92,690
BVt1		478,000			504,000			541,000			562,000			598,000
re		0.152			0.167			0.159			0.172			0.166

Company B	2013			2014			2015			2016			2017
Xt	$	192,940		$	176,341		$	227,700		$	198,900		$	282,964
BVt1		877,000			943,000			989,999			1,020,000			1,199,000
re		0.188			0.179			0.183			0.175			0.186

Required:

Calculate each firms AE_t each year from 2013 to 2017. (Round your final answers to the nearest whole dollar. Negative abnormal earnings should be indicated with a minus sign.)

Which firm was better managed over the 20132017 period?

Which firm is likely to be the better stock investment in 2018 and beyond?

		2013	2014	2015	2016	2017
1.	Company A
	Company B
2.	Was Company B better managed over the 20132017 period?
3.	Is Company B likely to be the better stock investment in 2018 and beyond?