Question

The macburger company expects to earn $200 million after taxes for the current year. The company pays half of of

its net after tax income to the shareholders of the company’s 100 million shares of common stock. A share of the common stock of the company currently sells for 8 times current earnings. management and outside analysts expect the growth rate of earnings and dividends for the company to be 7.5%. Calculate the cost of equity to this firm

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