Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its $9 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 15%, a before-tax cost of debt of 10%, and a tax rate of 40%.
The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D_1) is $2 and the current stock price is $25.
a. What is the company's expected growth rate? at the end of the calculations. Do not round your intermediate calculations. 13.00 %
b. If the firm's net income is expected to be $1.8 billion, what portion of its net income is the firm expected to pay out as dividends? Growth rate = (1 - Payout ratio) ROE (at the end of the calculations. Do not round your intermediate calculations. 24.00 %