Part A. Kellogg pays $3.50 in annual per share dividends to its common stockholders, and its recent stock price was $93.80. Assume that Kelloggs cost of equity capital is 5.0%.

Estimate Kelloggs expected growth rate based on its recent stock price using the dividend discount model with increasing perpetuity.

Do not round until your final answer. Round answer to one decimal place (ex: 0.0245 = 2.5%).

Part B. Kellogg Company manufactures cereal and other convenience food under its many well-known brands such as Kelloggs, Keebler, and Cheez-It. The company, with over $13.5 billion in annual sales worldwide, partially finances its operation through the issuance of debt. At the beginning of its 2015 fiscal year, it had $6.5 billion in total debt. At the end of fiscal year 2015, its total debt had increased to $6.6 billion. Its fiscal 2015 interest expense was $227 million, and its assumed statutory tax rate was 37%.

Kellogg has an estimated market beta of 0.40. Assume that the expected risk-free rate is 2.5% and the expected market premium is 5%.

Estimate Kelloggs cost of equity capital.

Round answer to one decimal place (ex: 0.0245 = 2.5%).