Good morning Professor,
I had a question regarding the approach used in the two different exercises (Exercise 1 Mock Exam & Chapter 7 In-Class Exercise 2) when calculating the gain.
In the mock-exam exercise, we sum the earnings of each company, adjusted to their respective growth rates, to calculate the PV (AB) and subsequently the gain.
What I have found different in the in-class exercise 2 is that instead of using the earnings (which can be easily found with the information given in the table), you use the market capitalization (Share Price * Number of shares).
What is the given information in both exercises that tells you which one to use (Earnings or Market Cap)? Because I do understand that in the case of the mock exam exercise, we had only information about the earnings, and so we had to use those, but what should we do in case we get both, like in the in-class exercise? Should we always use Market Cap?
Best Regards,
Pietro Loser