You have recently learned that the company where you work is

You have recently learned that the company where you work is

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? _____________________________________________I have a bunch of formulas but don't know how to go about answering this question
P= � D/kP= � D1/(k � g)
where P � present price of stockD � dividends received per year (in year 1, year 2, . . . year n)k � discount rate applied by financial community, often referred to as cost ofequity capital of companywhere D1 � dividend to be paid during coming yearg � annual constant growth rate of dividend expressed as a percentage
 
 

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