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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