Answer: $25

## Calculation Explanation **Single-Stage Residual Income Model Formula:** \[ V_0 = B_0 + \frac{(ROE - r_e) \times B_0}{r_e - g} \] Where: - \( B_0 \) = Current book value per share = $15 - ROE = Return on equity = 12% - \( r_e \) = Cost of equity = 10% - g = Growth rate = 2.5% **Step 1: Calculate the residual income component** \[ (ROE - r_e) \times B_0 = (0.12 - 0.10) \times 15 = 0.02 \times 15 = 0.30 \] **Step 2: Calculate the present value of residual income** \[ \frac{(ROE - r_e) \times B_0}{r_e - g} = \frac{0.30}{0.10 - 0.025} = \frac{0.30}{0.075} = 4.00 \] **Step 3: Calculate intrinsic value** \[ V_0 = B_0 + PV \text{ of residual income} = 15 + 4.00 = 19.00 \] Wait, this gives $19, but let me double-check the calculation: Actually, the correct calculation should be: \[ V_0 = B_0 + \frac{(ROE - r_e) \times B_0}{r_e - g} = 15 + \frac{(0.12 - 0.10) \times 15}{0.10 - 0.025} = 15 + \frac{0.30}{0.075} = 15 + 4 = 19 \] This gives $19, which matches option A. However, let me verify if there's another approach: **Alternative Calculation:** \[ V_0 = B_0 \times \frac{ROE - g}{r_e - g} = 15 \times \frac{0.12 - 0.025}{0.10 - 0.025} = 15 \times \frac{0.095}{0.075} = 15 \times 1.2667 = 19.00 \] Both methods give $19, which corresponds to option A. The answer should be **A: $19**.

Author: LeetQuiz Editorial Team