In the Capitalization Earnings method, if the future earning is fixed, apply it directly.Select one:TrueFalse

Analysis of the Statement

The Capitalization of Earnings method is used in business valuation to determine the value of a company based on its expected earnings. The statement suggests that if future earnings are fixed, one can apply them directly to this method.

1. Understanding Capitalization of Earnings: This method involves taking the expected earnings and dividing them by a capitalization rate (which reflects the risk of the investment and the return expected by investors).

2. Fixed Future Earnings: If future earnings are fixed, they can be considered stable and predictable. In this scenario, applying the earnings directly could simplify the calculation. However, one must still determine an appropriate capitalization rate to complete the valuation.

Conclusion

The statement that you can apply future fixed earnings directly in this method is True, as fixed earnings provide a straightforward basis for valuation using the Capitalization of Earnings method, although care must still be taken in determining the capitalization rate.