You've recently learned that the company where you work is being sold for $550,000. The company's income statement indicates current profits of $24,000, which have yet to be paid out as dividends. Assuming the company will remain a "going concern" indefinitely and that the interest rate will remain constant at 7 percent, at what constant rate does the owner believe that profits will grow?
Current price of company=Po=$550,000
Current profit of company=Current Dividends=Do=$24,000
Solution depicts the steps to estimate the constant growth rate in the given case.