(Answered) Question - boston inc is a distritrutor of restaurant

Accounting

Question - Boston, Inc. is. a distritrutor of restaurant Supplies. Management for the company has developed the following forecasts of net income:

Forecasted Year Net Income

2017 $130,125

2018 $140,450

2019 $166,800

2020 $184,200

2021 $198,250

Management expects net income to grow at a rate of 3 percent per year after 2021 and the company's. beta is. 1.4. Management has set a dividend payout ratio equal to 30% of net income and plans to continue this. policy. Boston's common shareholders' equity at January 1, 2017 is $850,300. Assume the risk free rate is 2.5% and market risk premium 10%.

Required:

a. Using the residual income model, compute the value of Boston as of January 1, 2017.

b. Using the dividend discount model, compute the value of Boston as of January 1, 2017.

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