All bonds have a face value of $1000 unless stated otherwise

All interest rates are annually compounded unless stated otherwise

2,000,000 shares outstanding with market share price of $80 per share

No preferred shares

A total of 40,000 bonds with YTM=6%. All bonds mature 18 years from now and have the same annual coupon rate.

A debt-to-equity ratio of D/E=1/3

A corporate tax rate of T=30%

It is expected to pay $4 dividends next year and dividends are expected to grow at a constant rate.

If it needs to issue new equity, it faces a flotation costs of F=15%

Assume also that the risk-free interest rate is 5%, market expected rate of return is 14% and the firms beta is 0.6

QFind the dividend growth rate