According to the abnormal earnings approach of equity valuation,investors willingly pay a premium for those firms that

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The abnormal earnings approach assumes that the market value of a firm's equity is equal to the book value of its equity plus the present value of its expected abnormal earnings. Abnormal earnings are defined as earnings that exceed the expected rate of return on the firm's assets. Investors are willing to pay a premium for firms that produce positive abnormal earnings, as it suggests that the firm is generating returns that are higher than what is expected for its level of risk. Firms that earn less than the cost of equity capital or produce negative abnormal earnings would not be attractive to investors, as they are not generating sufficient returns to justify the risk of investing in them. earning an amount equal to the equity cost of capital would not result in a premium valuation, as the expected return would simply equal the required return.

According to the Abnormal Earnings Approach of Equity Valuation,investors Willingly