Question
2. For Summer, Inc, Gandevani's Smart Students at the end of 2014 developed the following forecasts of net income: Forecasted Year Net Income 2015 $20,856
2. For Summer, Inc, Gandevani's Smart Students at the end of 2014 developed the following forecasts of net income:
| Forecasted |
Year | Net Income |
2015 | $20,856 |
2016 | $22,733 |
2017 | $24,552 |
2018 | $27,252 |
2019 | $29,978 |
Management believes that after 2019 Summer will grow at a rate of 7% each year. Total common shareholders' was $112,768 on December 31, 2014. Summer has not established a dividend and does not plan to paying dividends during 2015 to 2019. Its cost of equity capital is 12%.
1. Compute the value of Summer on January 1, 2015, using the residual income valuation model. Use the half-year adjustment. (10 pts)
2.What would be Summer residual income in 2017? (10 pts)
3. What would be Summer common shareholders' equity at the end of 2018? (10pts)
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