00:01
Hello students, here is a question.
00:02
New and improved has a target capital structure of 50%, equity and 50 % debt fund of 5 billion capital.
00:10
For more, the wacc of 120%, assume nai before tax cost of debt is 8%, the tax rate is 30 % and its retained earnings are adequate to the fund of common equity portion of a capital budget.
00:26
If expected dividend next year is $4 and the current stock price is $40, what is the company's expected growth? so, this is our problem.
00:36
Let us start doing the solution.
00:37
To determine the expected growth rate nai, we can use the constant growth rate model which is po is equal to d1 by r minus g.
00:50
So, po is the current stock price, d1 is the expected dividend next year, r is the required rate of return which is weighted average cost of capital wacc, g is an expected growth.
01:01
So, we can use the formula g is equal to r minus d1 divided by p0...