In this paper I describe a study of the predictive ability of price-level adjusted and unadjusted historical earnings numbers for a sample of firms in the electric utility industry during the period 1935-1940. The criterion used to assess predictability was an ex post valuation. The ex post valuation was computed by discounting actual net cash flows plus a terminal market value back to base periods which ranged from 1938 to 1941. Ex ante valuations based on adjusted and unadjusted accounting data available at the base periods are compared to the ex post valuations to evaluate the predictive ability of these earnings streams. The test is intended to provide empirical evidence about both the accuracy of predictions based on earnings data in general and the relative predictive abilities of price-level-adjusted and unadjusted earnings numbers. The valuation models used in the empirical test are based on homogeneous risk class models defined by Modigliani and Miller.' The derivation of these models are described in the next section.