Question

On Jan. 1, Year 1, you are considering purchase of Necco Co.’s common stock. Based on...

On Jan. 1, Year 1, you are considering purchase of Necco Co.’s common stock. Based on your analysis, you have determined that:

Book value at Jan. 1, Year 1 is $60 per share

Forecasted Net Income per share for Years 1 through 5 is $12, $15, $25, $50 and $60, respectively

For Year 6 and thereafter, predicted residual income is $0

The firm does not pay dividends

The cost of capital is 15%

Using the Residual Income model, what would be the value of this stock?

A.

$97.18
B.

$110.37
C.

$100.91
D.

$113.36
E.

$86.31
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