Intrinsic Value Calculation Using Residual Income Model

Consider a company, Alpha Technologies, which has a current book value of equity amounting to $10 million. The company forecasts a net income of $1.5 million for the upcoming year, and its cost of equity is estimated to be 12%. The earnings growth rate is expected to remain constant at 5%. Using the Residual Income Model (RIM), what is the implied intrinsic value of Alpha Technologies' equity?

The Residual Income Model values equity based on current book value and future residual incomes, which are defined as net income minus equity charge. The equity charge for a given period is calculated by multiplying the company's equity capital with the cost of equity.