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Calculating the constant growth rate in the given case

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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?

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Current price of company=Po=$550,000
Current profit of company=Current Dividends=Do=$24,000

Let ...

Solution Summary

Solution depicts the steps to estimate the constant growth rate in the given case.