Forecasts of net income

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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?

Reference no: EM131158538

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