Which of the following explains the rationale for using "normalized" earnings under the excess-earnings valuation approach?
A) Historic asset values are the best reflection of the assets' value in use.
B) The company's future earnings should always be higher than the past earnings.
C) The past often provides useful information about the future; past earnings are a good starting point.
D) Normalized earnings are not used under the excess-earnings valuation approach.

Question

Quizplus · Accepted Answer

The excess-earnings approach uses normalized earnings because the past earnings are a good starting point for estimating the future earnings. Normalizing the earnings allows for adjustments to be made for any abnormal or non-recurring events that may have affected past earnings. This provides a clearer picture of the earnings potential of the company going forward.

Which of the Following Explains the Rationale for Using "Normalized