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

question 62

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%.
-At the beginning of 2012 investors had invested $125,000 of common equity in Jan Corp.and expect to earn a return of 15% per year.In addition,investors expect Jan Corp.to pay out 100% of income in dividends each year.Forecasts of Jan's net income are as follows:
2012 - $41,000
2013 - $35,400
2014 - $33,200
2015 and beyond - $25,000
Using this information,what is Jan's residual income valuation at the beginning of 2012?

• A) $125,000
• B) $184,600
• C) $190,262
• D) $260,415

---

Definitions:

Freud

An Austrian neurologist and the founder of psychoanalysis, known for his theories on the unconscious mind, developmental stages, and defense mechanisms.

Ego

Refers to the part of the mind that mediates between the conscious and the unconscious and is responsible for reality testing and a sense of personal identity.

Reality Principle

The concept in psychoanalytic theory that the mind functions to mediate between the demanding needs of the id and the external real world.

Ego

In psychoanalytic theory, the part of the mind that mediates between the conscious and the unconscious and is responsible for reality testing and a sense of personal identity.