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day4 - Relevant Metrics Dr James Gong Click to edit Master...

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Click to edit Master subtitle style Relevant Metrics Dr. James Gong
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Today’s Agenda n What accounting information to report? n Theoretical model n SFAC 5 and SFAC6 n Group exercise: What do financial analysts  want? n What’s strategy and why strategy in  accounting? n Strategy based business reporting model n PwC Value-reporting n UIUC strategy based auditing
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Review of Last Session n How do we measure phenomena and  attributes in accounting?
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What Information to Report n Theoretical model n Finance theory based n Accounting based
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Gordon s Dividend Discount Model P 0 D t = t = 1 (1+k )t where P0 = Current value of stock Dt = Dividend at time t  k = Required return P 0 D1+ P1 = (1+ k) If holding in one period P 0 D 1 = (1+ k) If holding in two periods D2+ P2 (1+k )2 + If holding for infinite periods
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Price-Earnings Relationship P 0 D 1 (1+ k) = D 0 k = D 1 (1+k )2 + + 0 (Assume no growth, i.e., D0 = D1 =…and  using the geometric progression formula) = k E 0 Assume earnings = dividends, and  assume earnings and dividends to remain  constant forever.
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