$\begin{array}{lrrr}&\text { Firm A }&\text { Firm B }&\text { Firm C }\
\text { Actual earnings } & \$ 6,000 & \$ 14,000 & \$ 18,000 \
r & 10 \% & 8 \% & 12 \% \
B V_{t-1} & \$ 100,000 & \$ 150,000 & \$ 190,000
\end{array}$
-What are the abnormal earnings for Firm A?

Question

Quizplus · Accepted Answer

Abnormal earnings are calculated as the actual earnings minus the expected earnings (which are the book value of the firm multiplied by the required rate of return). For Firm A, the expected earnings are $100,000 * 10% = $10,000. The actual earnings are $6,000. Therefore, the abnormal earnings are $6,000 - $10,000 = -$4,000.

-What Are the Abnormal Earnings for Firm A? A)($4,000) B)($6,000)

-What Are the Abnormal Earnings for Firm A?
A)($4,000)
B)($6,000)