Satoshi Labs has 100 million shares outstanding, trading at $50/share. The company has no debt outstanding and no cash balance. Its stock has a beta of 0.90, the risk-free rate is 3% and the equity risk premium is 6%.

The company is in stable growth and is expected to generate free cash flows, prior to debt payments but after taxes and reinvestment needs, of $ 250 million next year.

Now assume that the company plans to permanently borrow $2 billion at a pre-tax cost of debt of 7% (assume debt has a beta equal to zero) and return the cash to equity investors in the form of a special dividend (the $2 billion is borrowed and paid out as a dividend). If the marginal tax rate is 40%, what effect will the borrowing have on the average cost of capital, assuming that your savings grow at the implied growth rate from part a?

c. Assuming the information in b., what will the stock price be after the special dividend?( Need to find the implied growth rate first)