Residual Income valuation

CFA Level II Equities
#1

The present value of SS projected residual income for the next five years plus the beginning book value is 75 per share.Beyond that time horizon, the firm will sustain a residual income of 11.25 per share, which is the residual income for year 6. The cost of equity is 10% the justified value of SS common stock is closest to :

A 69.85

B 112.50

C 144.85

#2

C. 144.85

Value at year 5. 11.25 / 0.10 = 112.5

Discount 112.5 back to year 0 at cost of equity (10%) to get 69.85 [112.5 / (1.10)^5]

Add the residual income and book value of 75.