posted by john .
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= 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