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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 Summary

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

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

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