Procter and Gamble Co. (PG) has a June fiscal year-end. On June 30, 2006, analysts expected the comp

Procter and Gamble Co. (PG) has a June fiscal year-end. On June 30, 2006, analysts expected the company to pay $1.41 dividends per share in fiscal year 2007. The company’s market beta is estimated to be 0.7. Assume that the risk-free rate is 4.6% and the market premium is 5%. During fiscal year 2006, the company’s sales growth was 20.2%. However, analysis reveals that P&G’s fiscal 2006 sales include eight months of sales from Gillette after its acquisition by P&G during 2006. Footnotes report pro forma sales that show what the income statement would have reported had Gillette’s full-year sales been included in both 2005 and 2006—specifically, P&G’s sales growth would have been 4.4%.(a) Estimate P&G’s cost of equity capital using the CAPM model. (Round your answer to one decimal place.).(c)