A firm is expected to earn $50 and $82 net income for the next two years, respectively.
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A firm is expected to earn $50 and $82 net income for the next two years, respectively. At the end of the two-year period, the firm will be liquidated. The $82 expected earnings in year 2 include gains and losses from disposals of assets and liabilities and all other winding-up costs. The firm’s book value at the beginning of year 1 is $500 and its cost of capital is 14%. Calculate the firm’s market value at the beginning of the year using the residual income model.
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