Porter, Inc Fred King, CFO of Porter, Inc $\text { Using the residual income model, compute the value of Porter, Inc. as of J anuary } 1,2012 \text {. Use the half-year adjustment. }$

Porter, Inc. is a distributor of electrical supplies. Management for the company has developed the following forecasts of net income:
$\begin{array}{c}\begin{array}{lll}\\\underline{\text { Year }}\\2012\\2013\\2014\\2015\\2016\\ \end{array}\begin{array}{lll}\text { Furetithed } \\\underline{\text { Net Income} } \\\$ 17,450 \\\$ 72,500 \\\$ 76,000 \\\$ 71,000 \\\$ 18,500\end{array}\end{array}$
Fred King, CFO of Porter, Inc., expects net income to grow at a rate of 9 percent per year after 2016 and the company's cost of equity capital is 15%. Management plans to pay out all income in dividends and plans to continue this policy into the future. Porter's common shareholders' equity at January 1, 2011 is $100,000.
Required:
$\text { Using the residual income model, compute the value of Porter, Inc. as of J anuary } 1,2012 \text {. Use the half-year adjustment. }$

Correct Answer:

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