1. Kahn Inc. has a target capital structure of 70% common equity and 30% debt to fund its $11 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 9%, and a tax rate of 25%. The company’s retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $3, and the current stock price is $29.
a. What is the company’s expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places.
b. If the firm’s net income is expected to be $2.0 billion, what portion of its net income is the firm expected to pay out as dividends? Do not round intermediate calculations. Round your answer to two decimal places. (Hint: Refer to Equation below.) Growth rate = (1 – Payout ratio)ROE. Get Finance homework help today