-Net Income Is Expected to Increase by 10% for the 2005

question 16

Multiple Choice

$$\begin{array}{l}\text { Rivaz Corporation }\\\begin{array} { l r } & 2005 \\\text { Net Income } & \$ 3,000 \\\text { Dividends } & \$ 1,000 \\\text { Total Assets } - 12 / 31 / 05 & \$ 35,000 \\\text { Total Liabilities } - 12 / 31 / 05 & \$ 21,225 \\\text { Number of shares outstanding } & 1,000 \\\text { Cost of Equity } & 12 \%\end{array}\end{array}$$
-Net income is expected to increase by 10% for the next year, and dividend payout ratio is expected to remain constant. After 2006, retained earnings are expected to decrease to zero. Using the residual income method what is the value per share of Rivaz stock as of 12/31/05?

• A)$15.25
• B)$15.16
• C)$14.38
• D)$13.77

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Definitions:

Siblings

Brothers or sisters; individuals having one or both parents in common.

Preoperational Stage

A stage in Piaget's theory of cognitive development, occurring roughly between the ages of 2 and 7, characterized by the development of language and symbolic thinking but limited in logical reasoning.

Concrete Operations

A stage in Piaget's theory of cognitive development, occurring roughly between the ages of 7 and 12, where children gain the ability to think logically about concrete events.

Jean Piaget

A Swiss psychologist known for his pioneering work in child development, particularly his theory of cognitive development that describes how children develop intellectual abilities.