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At the end of Year 0 Jarrett Corp. developed the following forecasts of net income: Management believes that after Year 3, Jarrett will grow at
At the end of Year 0 Jarrett Corp. developed the following forecasts of net income: Management believes that after Year 3, Jarrett will grow at a rate of 7\% each year. Total common shareholders' equity was $110,000 on December 31, Year 0. Jarrett has not established a dividend and does not plan to pay dividends during Year 1 to Year 3. Its cost of equity capital is 12%. 1. Calculate Jarrett's residual income in years 1,2 , and 3. 2. Calculate the continuing value of residual income after year 3 . 3. Compute the value of Jarrett at the beginning of year 1, using the residual income valuation model
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