The Abnormal Net Income Model Defines the Market Value of a Firm

question 17

Multiple Choice

The abnormal net income model defines the market value of a firm

• A)is its book value minus the present value of expected economic profits.
• B)is its book value plus the present value of expected economic profits.
• C)is its book value divided by the present value of expected economic profits.
• D)is its book value multiplied by the present value of expected economic profits.

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Definitions:

Depletion

Systematic and rational allocation of the cost of a natural resource over the period of its exploitation

Straight-Line Depreciation

A method of allocating an asset's cost evenly across its useful life.

Natural Resources

Assets occurring in nature, such as mineral deposits, timber tracts, oil, and gas

Tangible Assets

Physical assets that hold value, such as land, buildings, vehicles, equipment, and inventory.