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

question 7

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%.
-Compute the value of Jarrett Corp.on January 1,2011,using the residual income valuation model.Use the half-year adjustment.

• A) $112,768
• B) $185,329
• C) $195,540
• D) $133,624

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