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Suppose that as you finish a valuation exercise on January 1, 20X1, using the abnormal earnings model, you forecast the abnormal earnings to be $50 at the end of 20X6. From that point, abnormal earnings is expected to grow at 2 percent. The discount rate is 10 percent. The present value factor for a single sum, 5 years, 10%, is 0.681.

Required:

Question: What is the present value as of January 1, 20X1 of the abnormal earnings beyond 5 years?

Note: Please show how to work it out.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164627

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