The price of equity at time 0 is equal to the

Question

Quizplus · Accepted Answer

The price of equity represents the present value of expected future cash flows to equity holders. Therefore, it is equal to the book value of equity at time 0 plus expected abnormal earnings in all future periods divided by discount factors for all future periods. Option A is incorrect as book value of equity only represents the historical value of the company's assets and liabilities, and does not take into account any expectations of future growth. Option B is incorrect because abnormal earnings are only expected in certain periods, not all future periods. Option D is incorrect as it subtracts expected abnormal earnings from book value, which does not accurately represent the value of the company's equity.

The Price of Equity at Time 0 Is Equal to the