Todd Corp.manufactures train components.On January 1,2011,management provided the following forecast of income for the next five years:
$$\begin{array} { l r }
\text { Year } & \text { Farectisted } \
2011 & \text { Net Income } \
2012 & \$ 53,576 \
2013 & \$ 65,853 \
2014 & \$ 7,985 \
2015 & \$ 88,646
\end{array}$$
Thomas' common shareholders' equity was $422,174 on January 1,2011.The firm does not expect to pay a dividend during the 2011-2015 period.Thomas' cost of equity capital is 11 percent.
Required:
Compute the value of Todd Company on January 1,2011,using the residual income valuation model and the half year convention.T.Harp,the CEO of Todd,expects net income to grow at a rate of 6 percent annually after 2015.

Question

Todd Corp.manufactures train components.On January 1,2011,management provided the following forecast of income for the next five years:
 $$\begin{array} { l r } 
\text { Year } & \text { Farectisted } \
2011 & \text { Net Income } \
2012 & \$ 53,576 \
2013 & \$ 65,853 \
2014 & \$ 7,985 \
2015 & \$ 88,646
\end{array}$$ 
Thomas' common shareholders' equity was $422,174 on January 1,2011.The firm does not expect to pay a dividend during the 2011-2015 period.Thomas' cost of equity capital is 11 percent.
Required:
Compute the value of Todd Company on January 1,2011,using the residual income valuation model and the half year convention.T.Harp,the CEO of Todd,expects net income to grow at a rate of 6 percent annually after 2015.

Quizplus · Accepted Answer

The Answer of Todd Corp.manufactures train components.On January 1,2011,management provided the following forecast of income for the next five years:
 $$\begin{array} { l r } 
\text { Year } & \text { Farectisted } \
2011 & \text { Net Income } \
2012 & \$ 53,576 \
2013 & \$ 65,853 \
2014 & \$ 7,985 \
2015 & \$ 88,646
\end{array}$$ 
Thomas' common shareholders' equity was $422,174 on January 1,2011.The firm does not expect to pay a dividend during the 2011-2015 period.Thomas' cost of equity capital is 11 percent.
Required:
Compute the value of Todd Company on January 1,2011,using the residual income valuation model and the half year convention.T.Harp,the CEO of Todd,expects net income to grow at a rate of 6 percent annually after 2015.

Todd CorpManufactures Train Components Thomas' Common Shareholders' Equity Was $422,174 on January 1,2011