Accounting & Finance Assignment

Questions: 1. What is the research question of interest to the authors of the paper? 2. Is this an interesting question? Why? 3. Why is this question related to or of interest to Accounting? 4. What is the source of tension in the paper that requires research? 5. In what setting is this question examined? 6. What does the paper find? 7. What does the paper conclude based on its findings? 8. How convincing is the evidence presented in the paper? How valid are the results? 9. How does this paper contribute to the literature, and to our knowledge? 10. What are the implications of this paper? Answers: 1. The research question that is into consideration is the model that pertains to the firms price per share that is related to expected earnings per share of the next year, growth that is related to the short-term growth, long-term growth in eps and the cost of equity. Equity valuation is the need of the hour and helps to focus on the growth. Hence, the eps model is the point of study, and the research question is how the eps, as well as growth in the eps, is linked to the current price per share of the firm (Brealey Myers, 1991). 2. It is an important consideration because eps growth rate is linked to the firms policy. The eps growth assumes a place of vital importance because it contains short-term measure, as well as long-term measure. Eps valuation is important because it helps in determining the price and hence a decision can be taken related to the future (Botosan, 1997). Its applicability can be greatly seen in the case of share purchase. 3. The question is related to accounting because eps is an important tool when it comes to predicting the future prices of the shares. It helps to determine the position where it would be. There are various growth models that help in knowing the eps and its growth in the long-run. Moreover, the development of the model is also important when it comes to accounting because that helps in the refinement of the process and brings desirable result (Botosan, 1997). 4. The source of tension that appears in the paper is that of the presence of various assumptions and each having it own applicability. This influences the choice of method and hence may lead to a problem at various point of time. A need for a formal model is greatly needed that will help to reduce the problem. 5. The question is examined with the fact that how the ratio, as well as expected growth is eps is determined. To deal with such an issue, a different, as well as, conceptual problem, has been defined. 6. Through the paper, it is found that a formal model must find a way for expected dividend per share. The paper also stresses the fact that DPS cannot be sidelined for two reasons. The DPS serves, as a huge source of value and the expected eps, as well as DPS must be aligned to each other. 7. The evidence present in the paper highlights the fact that eps, as well as DPS have a strong relation and progress at the same rate. This is a good finding, but the approach cannot put a demarcation between the eps and DPS (Ohlson Juettner-Nauroth, 2005). Therefore, the validity of the results cannot be justified on a bigger scale because there are loopholes in the findings as the distinction is unavailable. 8. The paper concludes that next-period eps, as well as eps growth, is related the current price per share. The current price per share helps to shed light on the eps that will be seen in the subsequent period. The model shows that Po/eps1 ration enhances when one increases among the two growth measures (Damodaran, 1997). Moreover, it is concluded from the research that the current price is not related to the dividend policy in a normal MM framework. 9. This paper is of utmost importance as it gives a vivid description of the eps and its determinants. This model is helpful for the prediction of share prices and helps in taking a strong decision regarding the future prices. Eps have provides a strong practical implication and is a great tool in evaluation (Ohlson, 2000). 10. The main implication of this paper lies in the eps, general principles and sheds light on the irrelevancy of the dividend policy. The valuation formula has also been showcased that projects how one expresses the cost of capital as a main tool for the forward eps to price ratio. These two have a strong role to play in the case of expected eps (Ohlson Juettner-Nauroth, 2005). The expression sheds light on the textbook equation where the cost of capital becomes equal to the DPS-yield and the growth that is seen in expected eps. References Brealey, R. A., and Myers, S. C 1991, Principles of Corporate Finance, New York: McGraw-Hill. Botosan, C. A. 1997, Disclosure Level and the Cost of Equity Capital, The Accounting Review, no. 72, pp. 323-349. Damodaran, A. 1997, Corporate Finance: Theory and Practice, New York: Wiley. Ohlson, J. A. 2000, Residual Income Valuation: The Problems, Working Paper. Stern School of Business. New York University. Ohlson, James A Juettner-Nauroth, Beate E 2005, Expected EPS and EPS Growth as Determinants of Value, Review of Accounting Studies, no. 10, pp. 349365.