Porter,Inc.is a distributor of electrical supplies.Management for the company has developed the following forecasts of net income:
Fred King,CFO of Porter,Inc.,expects net income to grow at a rate of 9 percent per year after 2016 and the company's cost of equity capital is 15%.Management plans to pay out all income in dividends and plans to continue this policy into the future.Porter's common shareholders' equity at January 1,2011 is $100,000.
Required:
Using the residual income model,compute the value of Porter,Inc.as of January 1,2012.Use the half-year adjustment.

Question

Porter,Inc.is a distributor of electrical supplies.Management for the company has developed the following forecasts of net income:
  Fred King,CFO of Porter,Inc.,expects net income to grow at a rate of 9 percent per year after 2016 and the company's cost of equity capital is 15%.Management plans to pay out all income in dividends and plans to continue this policy into the future.Porter's common shareholders' equity at January 1,2011 is $100,000.
Required:
Using the residual income model,compute the value of Porter,Inc.as of January 1,2012.Use the half-year adjustment.

Quizplus · Accepted Answer

The Answer of Porter,Inc.is a distributor of electrical supplies.Management for the company has developed the following forecasts of net income:
  Fred King,CFO of Porter,Inc.,expects net income to grow at a rate of 9 percent per year after 2016 and the company's cost of equity capital is 15%.Management plans to pay out all income in dividends and plans to continue this policy into the future.Porter's common shareholders' equity at January 1,2011 is $100,000.
Required:
Using the residual income model,compute the value of Porter,Inc.as of January 1,2012.Use the half-year adjustment.