Exam 13: Valuation: Earnings-Based Approaches

______________________________ is the amount by which expected future earnings exceed the required earnings.

Dirty surplus items in U.S. GAAP typically arise from all of the following except:

Accounting for the book value of common shareholders' equity in a firm can be expressed as follows: BV_t = BV_t-1 + ____________________ - D_t.

To measure a firm's economic performance and position in a given period, it makes sense to measure all of the following except:

The ______________________________ valuation model uses expected future net income and the book value of common shareholders' equity as the basis for valuation.

Currently U.S. GAAP does not follow clean surplus accounting. What are the four dirty surplus items that do not flow through net income?

Which of the following would likely be the most useful when valuing a dot.com company?

Assume that a firm's book value at the beginning of the year is $17,800 and that the firm reports net income of $6,200. If the firm's book value at the end of the year is $20,000 what was the amount of dividends paid during the year?

The value of a share of common equity should equal the present value of the _____________________________________________ the shareholders will receive.

Required earnings are the

Investors have invested $25,000 in common equity in a company. Given the risk inherent in the company the investors expect to earn a 15 percent return. In addition, the investors expect the company to return all income to investors in the form of dividends. The company is forecasted to earn $4,000 the first year, $5,000 the second year, $4,500 the third year and $3,750 each year after the third year. For this company determine the company's residual income valuation

Early in a period in which sales were increasing at a modest rate and plan expansion and start-up costs were occurring at a rapid rate, a successful business would likely experience

If investors have invested $25,000 of common equity in a company and it is determined that the required earnings of the company are $2,250 each period, then investors must expect to earn what return?

Residual income valuation focuses on

Clean surplus accounting means that net income includes all of the recognized elements of income for the firm for _____________________________________________.

Residual income will be zero when

The residual income valuation approach assumes that accounting for net income and book value of shareholders' equity follows ________________________________________.

Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,200 at the end of 2010. During 2011 the firm earns net income of $900, pays dividends to shareholders of $400, and issues new stock to raise $250 of capital. The book value of shareholders equity at the end of 2011 is:

Accounting earnings numbers provide a basis for valuation because earnings are the primary measure of ______________________________ produced by the accrual accounting system.

Residual income is the