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    Discount Rate

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    Constant-Growth Model. 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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    Solution Preview

    Using the constant growt model
    Discount rate = D1/MP + g
    In ...

    Solution Summary

    The solution explains how to calculate the discount rate using the constant growth model