Youve recently learned that the company where you work is be

You’ve recently learned that the company where you work is being sold for $510,000. The company’s income statement indicates current profits of $19,000, 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 9 percent, at what constant rate does the owner believe that profits will grow?

Instruction: Round your response to 2 decimal places.

Growth rate of: _______________ percent

Solution

Growth rate = 0.09 - [(1+ 0.09)19000] / 510000 = 4.94%