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.
2. What would be Summer residual income in 2017?
3. What would be Summer common shareholders' equity at the end of 2018?