USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent.
-Refer to Exhibit 9.9. What is the current earnings multiplier?
A) 2.5
B) 5.0
C) 7.5
D) 10.0
E) 12.5

Question

Quizplus · Accepted Answer

The earnings multiplier can be calculated using the formula EM = (1 - b) / (r - g). Plugging in the given values, we get EM = (1 - 0.6) / (0.12 - 0.04) = 0.4 / 0.08 = 5.0. Therefore, the current earnings multiplier is 5.0.