What is residual income valuation

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Reference no: EM131980860

1. At the beginning of 2012 investors had invested $125,000 of common equity in Jan Corp. and expect to earn a return of 15% per year. In addition, investors expect Jan Corp. to pay out 100% of income in dividends each year. Forecasts of Jan's net income are as follows: 2012 - $41,000 2013 - $35,400 2014 - $33,200 2015 and beyond - $25,000 Using this information what is Jan's residual income valuation at the beginning of 2012?

$190,262 $184,600 $125,000 $260,415

2. With investments earning 9%, and inflation at 2%, a reasonable approximation of an opportunity cost of carrying credit card debt at 18% APR is:

A. 18%

B. 29% (18 + 9 + 2)

C. 7% (18 - 9 - 2)

D. The future value of the investment you could have made instead.

Reference no: EM131980860

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