Stock Dividend
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A stock sells for $40. The next dividend will be $4 per share. If the rate of return earned on reinvested funds is 15 percent and the company reinvests 40 percent of earnings in the firm, what must be the discount rate?
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This solution is comprised of a detailed explanation to answer what must be the discount rate.
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Step 1:
Find out Expected growth rate=
=Retention rato* return on equity
( Retention ratio= ...
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