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

Question

Quizplus · Accepted Answer

Abnormal earnings are calculated as the actual earnings minus the expected earnings based on the firm's cost of equity. For Firm B, the expected earnings are 8% of $150,000, which is $12,000. The actual earnings are $14,000. Therefore, the abnormal earnings are $14,000 - $12,000 = $2,000.

-What Are the Abnormal Earnings for Firm B? A)$1,000 B)$2,000

-What Are the Abnormal Earnings for Firm B?
A)$1,000
B)$2,000