Understanding Expected Earnings and Willingness to Accept in Financial Decisions

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Explore the concept of expected earnings and willingness to accept in financial transactions through a series of images depicting the valuation process. Discover how financiers assess the worth of stakeholders and the implications of lowering valuations on average earnings, leading to potential market unraveling.

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Uploaded on Sep 26, 2024 | 0 Views

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Expected Earnings Median college-goer expects to earn $20K at age 26 Average Value

Expected Earnings Median college-goer expects to earn $20K at age 26 Average Value But the average earnings of those with below-median expectations is $12K

Expected Earnings Median college-goer expects to earn $20K at age 26 Average Value So a stake in their earnings is worth only $12K to financiers

Expected Earnings Willingness to Accept Median individual s WTA is $16K Average Value

Expected Earnings Willingness to Accept Average Value Financier loses 25% ($4K for every $16K)

Expected Earnings Willingness to Accept They could lower their valuation to $12K Average Value

Expected Earnings Willingness to Accept They could lower their valuation to $12K Average Value But now average earnings of those accepting the contract is just $10K

Expected Earnings Willingness to Accept They could lower their valuation to $12K Average Value The financier again loses money: $2K for every $12K of financing they offer