Assuming the company maintains a constant retention ratio, Financial Management

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Assuming the company maintains a constant retention ratio

Suppose Al's Infrared Sandwhich Company has a current book value of $10.85 per share. The most recent earnings per share were $2.96, and earnings are expected to grow 6 percent forever. The appropriate discount rate is 8.2 percent. Assume the clean surplus relationship is true. Assuming the company maintains a constant retention ratio, what is the value of the company according to the residual income model if there are no dividends?

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Financial Management: Assuming the company maintains a constant retention ratio

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