Question

What is the abnormal net income model? Where does the entrepreneur show up in this model?

What is the abnormal net income model? Where does the entrepreneur show up in this model?

Homework Answers

Answer #1

It is also known as the residual income model. The model is actually a method for predicting the prices of stock. The model is based on the expectation and if investors are expecting the company to be able to earn a normal rate of return then every stock is worth its book value. The model indicates that the market value of the price of a share of a stock goes up when the Expectations about the future net income are strong. The role of entrepreneur is very important in this model. The company may be able to on abnormal profit for a longer period of time depending upon how fast its competitors are able to react and drive its profit down to zero. This speed at which the abnormal net income is reduced to zero is the rate at which the entrepreneur is able to create something or compete with other firms.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that net income is the economic benefit in the valuation model. What is the present...
Assume that net income is the economic benefit in the valuation model. What is the present value of net income equal to $15,490,000 to be earned in 5 years? Assume the cost of equity is 12%, the cost of debt is 4% and WACC is 10%. Show the calculation. Answers: a. $12,731,650.88 b. $10,379,721.39 c. $8,789,442.00 d. $9,618,071.29
Why does biopsychosocial model explain abnormal behavior best and why do I feel this way in...
Why does biopsychosocial model explain abnormal behavior best and why do I feel this way in essay form.
Which measure should pick up on high salaries: Net Interest Income or Net Income? Which measure...
Which measure should pick up on high salaries: Net Interest Income or Net Income? Which measure should pick up on high fee income: Net Interest Income or Net Income? Which measure better picks up on high deposit interest: Net Interest Income or Net Income? Which measure better picks up on the efficiency of the bank’s core business operations: Net Interest Income or Net Income? Which of the banks above has a higher Net Interest Margin? Which type of bank typically...
For a specific model (with no Net Exports) where the Consumption function is given as C...
For a specific model (with no Net Exports) where the Consumption function is given as C = 150 + 0.75YD I = 120 G = 500 Tax rate = 20% calculate the equilibrium level of income showing all your calculations; calculate the multiplier in (a) case showing all your calculations; suppose Tax rate increases to 25%. What is the equilibrium income now? The new multiplier? Show all your calculations. explain why the multiplier numerical value must be greater than 1.
An entrepreneur has a venture that will make either $196 million or $0. The chance that...
An entrepreneur has a venture that will make either $196 million or $0. The chance that this venture will make $196 million depends on the effort expended by the entrepreneur: If she tries hard, the chance of the $196 million outcome is 0.2. If she does not try hard, the chance of this outcome is 0.04. The entrepreneur is risk averse with utility function: u(x)=√x-disutility of effort: where the disutility of effort is 0 if the entrepreneur does not try...
Consider the following fixed-investment model. An entrepreneur has cash A and can invest I1 > A...
Consider the following fixed-investment model. An entrepreneur has cash A and can invest I1 > A in a project. The project’s payoff is R1 in the case of sucess and 0 otherwise. The entrepreneur can work, in which case her private benefit is 0 and the probability of success is pH, or shirk, in which case her private benefit is B1 and the probability of success pL. The project has positive net present value (pHR1 > I1), but will not...
Consider the following fixed-investment model. An entrepreneur has cash A and can invest I1 > A...
Consider the following fixed-investment model. An entrepreneur has cash A and can invest I1 > A in a project. The project’s payoff is R1 in the case of sucess and 0 otherwise. The entrepreneur can work, in which case her private benefit is 0 and the probability of success is pH , or shirk, in which case her private benefit is B1 and the probability of success pL. The project has positive net present value (pHR1 > I1), but will...
Economic Growth Model Why does the economic growth model predict that poor countries should catch up...
Economic Growth Model Why does the economic growth model predict that poor countries should catch up to rich countries in income per capita ? Have poorer countries been catching up ( converging) with richer countries ? Explain.
In the neoclassical model with fixed income, if there is a decrease in net taxes with...
In the neoclassical model with fixed income, if there is a decrease in net taxes with no change in government spending, then public saving ______ and private saving ______ Select one: a. increases; increases b. increases; decreases c. decreases; increases d. decreases; does not change
What does a drop in total operating cost mean? What does a rise in net income...
What does a drop in total operating cost mean? What does a rise in net income mean?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT