Eampk company has a net book value of 220000 the company, Ask an Expert

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E&K Company has a net book value of $220,000. The company has a 10% cost of capital. The firm expects to have profits of $45,000, $40,000, and $35,000 for the next three years (respectively). The company pays no dividends and depreciation is 5% per year of book value.

Using the excess earnings model, should the firm be valued at more or less than its book value?
What, if anything, are the company's abnormal earnings for the next 3 years?
What is your best estimate of the firm's value using the excess earnings model?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9946541

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