Example of Earnings Yield Valuation

Estimated maintainable earnings are £240,000 per annum; rate of return required is 25 percent.

Calculate the value of the business.

Value MV) =       E/ EY x 100

                =       240,000/0.25 x 100

   M.V.      =       £960,000

This method can be transformed into the theoretical base, particularly if the business is going to relate.

PV = C/i (1-(1/ (1+0.25) ^N))                                          

Note as

Like N approaches ∞

PV = C/r

     = 240,000/ 0.25

     = £960,000