Jarrett Corp Management Believes That After 2015 Jarrett Will Grow at a Following

question 63

Multiple Choice

Jarrett Corp.
At the end of 2010 Jarrett Corp.developed the following forecasts of net income:
$\begin{array}{lccc}& \text {Forecasted } \\ \text { Year: }& \text { Net Income} \\2011&\$20, 856\\2012&\$22,733\\2013&\$24,552\\2014&\$27,252\\2015&\$ 29.978\\\end{array}$

Management believes that after 2015 Jarrett will grow at a rate of 7% each year.Total common shareholders' equity was $112,768 on December 31, 2010.Jarrett has not established a dividend and does not plan to paying dividends during 2011 to 2015.Its cost of equity capital is 12%.
-If investors have invested $20,000 of common equity in a company and it is determined that the required earnings of the company are $$1,250 each period,then investors must expect to earn what return?

• A) the risk free rate
• B) 9%
• C) 6.25%
• D) the market premium

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of a specific product and are an integral part of the finished product.

Indirect Materials

Materials used in the production process that cannot be directly linked to a specific product, such as lubricants and cleaning supplies.

Managerial Accounting

The practice of identifying, measuring, analyzing, interpreting, and communicating financial information to managers for the purpose of achieving organizational goals.

Decision Makers

Individuals or groups responsible for making choices or decisions within an organization, typically affecting its strategy or operations.