1) On page 148 Stugis defines economic value to be the book value plus the
present worth of expected future earnings. Later on, an alternative formula
subtracts the present value of the cost of capital. If a question were to ask
for Sturgis's definition of economic value, what would the correct answer be?
Based on some of the Actex solutions to some of the more recent questions, the
questions will say whether to exclude the cost of capital, so maybe this is a
non-issue now?
2) This may also be a non-issue because the answer doesn't seem to be in the
paper, but when computing the diluted value, one Actex solution multiplies the
acquisition ROE/buyer's ROE by the book value and another multiplies by the
market value. Anybody know why?
Thanks for your help.