Gateway Inc. Growth Rate
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Grateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45 percent debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the company's tax rate is 30 percent. If the expected dividend next period (D1) and current stock price are $5 and $45, respectively, what is the company's growth rate?
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Solution Summary
The solution explains how to determine the company's growth rate with formula, calculations and answers.
Solution Preview
We use the dividend discount model to calculate the growth rate. The model needs the cost of equity.
We first calculate ...
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