WACC AND COST OF COMMON EQUITY
Kahn Inc. has a target capital structure of 60% common equityand 40% debt to fund its $9 billion in operating assets.Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debtof 10%, and a tax rate of 40%. The company's retained earnings areadequate to provide the common equity portion of its capitalbudget. Its expected dividend next year (D1) is $2, andthe current stock price is $29.
- What is the company's expected growth rate? Round your answerto two decimal places at the end of the calculations. Do not roundyour intermediate calculations.
%
- If the firm's net income is expected to be $1.4 billion, whatportion of its net income is the firm expected to pay out asdividends? (Hint: Refer to Equation below.)
Growth rate = (1 - Payout ratio)ROE
Round your answer to two decimal places at the end of thecalculations. Do not round your intermediate calculations.
%
