Exam 13: Valuation: Earnings-Based Approaches

____________________ are the fundamental, value-relevant attribute of expected future returns.

The foundation for residual income valuation is the classical _____________________________________________.

If an analyst expects a firm to generate net income each period exactly equal to required earnings, then the value of the firm will be equal to the ______________________________ of common shareholders' equity.

Residual income is:

When debating the issue of whether to use free cash flows or earnings in a valuation model, economists sometimes argue that ____________________ can be subject to purposeful management by a firm and thus make them less useful.

Residual income is the:

Over the life of the firm, the present value of ______________________________, ______________________________, and ____________________ will be the same.

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:

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

If investors have invested $20,000 of common equity in a company and it is determined that the required earnings of the company are $$1,250 each period, then investors must expect to earn what return?

__________________ means that net income includes all of the recognized elements of income of the firm for common equity shareholders and dividends include all direct capital transactions between the firm and the common equity shareholders.

In some industries, competitive dynamics eventually drive long-run projections of the future returns earned by the firm to an equilibrium level equal to the long-run expected cost of equity capital in the firm. At that point, a firm can be expected to earn ____________ residual income in the future.

Accounting for the residual income in a firm with 100% dividend payout can be expressed as follows: RI_t = CI_t- ____________________ X BV_t-1

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

Clean surplus accounting means that ____________________ include all direct capital transactions between the firm and the common equity shareholders.

Over the life of a firm, the capital invested in the firm by the shareholders plus the income of the firm will reflect:

The residual income valuation model is a rigorous and straightforward valuation approach, but the analyst should be aware of all of the following implementation issues that will hinder its ability to measure firm value correctly except :

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

Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,500 at the end of 2010. During 2011 the firm earns net income of $1,900, pays dividends to shareholders of $200, and issues new stock to raise $500 of capital. The book value of shareholders' equity at the end of 2011 is:

What would be Jarrett's residual income in 2013?