How do you figure out the return of capital and abnormal earnings for each year? (Year...

How do you figure out the return of capital and abnormal earnings for each year?

(Year 2020, 2021,2022)

Net income	68,258	81,225	84,980
Cost of equity capital	487,560	514,080	551,820
Book value of equity	0.15504	0.17034	0.13218

Expert Solution

return on capital 2020=68258/487560=14.00%

return on capital 2021=81225/514080=15.80%

return on capital 2022=84980/551820=15.40%

abnormal earnings for 2020=68258-487560*0.15504=-7333.30

abnormal earnings for 2021=81225-514080*0.17034=-6343.39

abnormal earnings for 2022=84980-551820*0.13218=12040.43

jeff jeffy answered 2 years ago

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