Calculate ABC Corporation's Expected Residual Income

ABC Corporation is a well-established company that has consistently generated substantial returns on equity (ROE). The management is focused on increasing shareholder value and has implemented strategic initiatives aimed at growth. Recent forecasts estimate that ABC's net income will grow at a rate of 5% annually for the next five years. The company has 1 million shares outstanding, and the required return on equity for investors is 10%.

Using the residual income valuation method, compute the expected residual income for Year 1 based on the following data: in Year 0, ABC Corporation had a book value of equity of $15 million. What is the expected residual income for Year 1?