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

Jarrett Corp.
At the end of 2010 Jarrett Corp. developed the following forecasts of net income:
$\begin{array}{c}\begin{array}{l}\\\text { Year } \\2011 \\2012 \\2013 \\2014 \\2015 \end{array}\begin{array}{l}\text { Forecasted}\\\text { Net Income}\\\$ 20,856 \\\$ 22,733 \\\$ 24,552 \\\$ 27,252 \\\$ 29,978 \end{array}\end{array}$


Management believes that after 2015 Jarrett will grow at a rate of 7% each year. Total common shareholders' 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%.
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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

Correct Answer:

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