Selected Data Are Presented Below for Two Companies Required:
Calculate Each Firm's Abnormal Earnings and Indicate Which Firm

question 116

Essay

Selected data are presented below for two companies.
$\begin{array}{lrr}&\text { Company A }&\text { Company B }\\\text { Actual earnings } & \$ 79,632 & \$ 176,341 \\B V_{t-1} & \$ 504,000 & \$ 943,000 \\\text { Cost of equity capital } & 0.167 & 0.175\end{array}$
Required:
Calculate each firm's abnormal earnings and indicate which firm was better managed during the year in question.

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Definitions:

Texture Gradients

A visual cue used to suggest depth in an image, where the texture becomes denser with distance.

Linear Perspective

A visual depth cue in which parallel lines appear to converge as they recede into the distance, aiding in depth perception.

Relative Height

In the field of perception, it refers to the concept that objects closer to the horizon in our field of vision appear further away than objects further from the horizon, aiding in depth perception.

Trichromatic Theory

A theory of color vision that proposes three types of color receptors in the eye sense, which perceive color through the relative rates of response by three types of cones, each one sensitive to different wavelengths of light.