You have recently learned that the company where you work is being sold for $275,000. The company’s. 1 answer below »

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You have recently learned that the company where you work is being sold for $275,000. The company’s income statement indicates current profits of $10,000 which have yet to be paid out as dividends. Assuming the company will remain a “growing concern” into the infinite future and that the interest rate will remain constant at 10%, at what constant rate does the owner believe the profits will grow? Does this seem reasonable? 
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I have a bunch of formulas but don't know how to go about answering this question

P= � D/k
P= � D1/(k � g)

where P � present price of stock
D � dividends received per year (in year 1, year 2, . . . year n)
k � discount rate applied by financial community, often referred to as cost of
equity capital of company
where D1 � dividend to be paid during coming year
g � annual constant growth rate of dividend expressed as a percentage

 

 

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