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 $460,000. The company’s income statement indicates current profits of $17,000, 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 8 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 = 0.08 - [(1+ 0.08)17000] / 460,000 = 0.04   or 4%