Consider the following table of Earnings Components: Firm A Firm B Firm CReported EPS$12 $15 $18Analyst’s EPS composition: Permanent component (βP = 5)80% 60% 75%Transitory component (βT = 1)10% 35% 25%Value-irrelevant component (β0 = 0)10% 5% 0% The implied total earnings multiple of Firm B is:Multiple Choice1.00.3.00.3.35.12.00

Implied earnings:- Implied earnings shows the market's expectations for how fast or slow a company's…

Answered: Consider the following table of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider the following table of Earnings Components:

	Firm A	Firm B	Firm C
Reported EPS	$12	$15	$18
Analyst’s EPS composition:
Permanent component (β_P = 5)	80%	60%	75%
Transitory component (β_T = 1)	10%	35%	25%
Value-irrelevant component (β₀ = 0)	10%	5%	0%

The implied total earnings multiple of Firm B is:

Multiple Choice

1.00.
3.00.
3.35.
12.00

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