Estimate a Venture's Constant Growth Rate G) Based on the Following

question 37

Multiple Choice

Estimate a venture's constant growth rate g) based on the following information: terminal value = $400,000; current year's net income = $20,000; next year's expected cash flow = $25,000; and a required rate of return of 20%.

• A) 2%
• B) 4%
• C) 6%
• D) 8%
• E) 10%

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Definitions:

Common Stock

Shares representing ownership in a company, giving holders voting rights and a share in the company's profits through dividends.

Retained Earnings

Profits that a company has kept or retained rather than paid out as dividends to shareholders.

Dividends

Payments made by a corporation to its shareholder members, typically from profits earned.

Revenues

The total amount of money received by the company for goods sold or services provided during a certain period.