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    Hwo much would you pay for Maddy Computer Company using the earnings multiplies model?

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    You have been reading about Maddy Computer Company (MCC), which currently retains 90 percent of its earning ($5 a share this year). It earns an ROE of almost 30 percent. Assuming a required rate of return of 14 percent, how much would you pay for MCC on the basis of the earnings multiplier model? Discuss your answer. What would you pay for Maddy Computer if its retention rate was 60 percent of its ROE was 19%?

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    Solution Summary

    The solution contains the computation of earnings multiplier model when there is change in retained earnings in an attached Excel file.