What should be the firm’s growth rate in order to attain a weighted average cost of capital of 11.5%?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 11P
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ABC Co.’s target capital structure is 55% equity and 45% debt. The company has sufficient retained earnings to fund the equity portion of its capital budget.  The before-tax cost of debt is 9%, and the company is subject to 30% income tax.  The expected dividend next period is P5 and the current stock price is P45. What should be the firm’s growth rate in order to attain a weighted average cost of capital of 11.5%?

a. 2.68%
b. 3.44%
c. 4.64%
d. 6.75%
e. answer not given

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