● 3. Residual Income Model (LO3, CFA9) Suppose Al’s Infrared Sandwich Company has a current book value of $10.85 per share. The most recent earnings per share (EPS) was $2.96, and earnings are expected to grow at 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?