Prokter and Gramble (PKGR) have historically maintained a debt-equity ratio of approximately 0.15. Its current stock price is $ 54 per share, with 2.8 billion shares outstanding. The firm enjoys very stable demand for its products, and consequently, it has a low equity beta of 0.375 and can borrow at 4.0%, just 20 basis points over the risk-free rate of 3.8%. The expected return of the market is 10.5% and PKGR's tax rate is 32%.

a. This year, PKGR is expected to have free cash flows of $6.5 billion. What constant expected a growth rate of free cash flow is consistent with its current stock price?

b. PKGR believes it can increase debt without any serious risk of distress or other costs. With a higher debt-equity ratio of 0.375, it believes its borrowing costs will rise only slightly to 4.3%. If PKGR announces that it will raise its debt-equity ratio to 0.375 through a leveraged recap, determine the increase or decrease in the stock price that would result from the anticipated tax savings.

(round to two decimal places.)