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Say you have a company that has a 25% payout rate on EPS 1, and can invest retained earnings at say 10%. So every year, it has DPS 0.25 and retained 0.75 The D/K part is the NPV of receiving the 0.25 dividend in perpetuity, discounted by K. Every year the 0.75 is then retained and invested. At 10% returns, that is 0.075 in perpetuity for that year's ...


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