Applied Research in Financial Reporting: Text and Cases . Chapter 5 Issue-Based Accounting Research. Chapter issues. A General Framework for Applied Accounting Research Contemporary Accounting Research Models Focus on Capital Markets Research Models in this Chapter.
Issue-Based Accounting Research
The Traditional Valuation Model: A stream of future dividends:
Vt = S (1 + r)-GEt[dt+G] G=1
The Fundamental Valuation Model: Book value and future abnormal earnings:
Vt = bvt + S (1 + r)-GEt[xt+G- rbvt+G-1]
bvt is book value at time t
r is the discount rate
Et[xt+G- rbvt+G-1] is the discounted future expected abnormal earnings at time t.
COC = [(1-t) * iD + rE] / TA
t = tax rate; i = interest rate, D = debt; E = Equity
r = expected rate of return by stockholders
TA = total assets
can produce abnormal returns
Call Option Cost = f (S, T, R, V, X, P)