Which of the Following Applies to the Clean Surplus Theory

question 57

Multiple Choice

Which of the following applies to the clean surplus theory?

• A)It is a theory that is applied to security valuation, but is not very attuned to accounting concepts and numbers.
• B)The theory values a firm's equity based on the beginning of the period book value plus the present value of expected future abnormal earnings.
• C)The theory considers a firm's abnormal earnings amount to be equal to its beginning of the period book value multiplied by the cost of equity capital.
• D)This theory does not tie in well with the FASB's concept of comprehensive income.

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