What Is the Rationale for Using Expected Earnings as a Basis

question 28

Essay

What is the rationale for using expected earnings as a basis for valuations?

Grasp the chief advantages of experimental methods.

Comprehend the importance of random selection and assignment in experiments.

Identify the independent and dependent variables in an experiment.

Distinguish between laboratory and field experiments.

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Definitions:

Irrelevance Theory

A concept in corporate finance that posits that the financing methods used by a company, whether through debt or equity, have no effect on its value.

Capital Gains

The profit earned from the sale of an asset, where the sale price exceeds the purchase price.

Cash Dividends

Profits paid out to shareholders by a corporation in the form of cash.

Retain Earnings

Profits that a company chooses not to pay out as dividends but instead reinvests in the business or keeps as a reserve for specific objectives.