1.

Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D₁, to be $2.20 and it expects dividends to grow at a constant rate g = 5%. The firm's current common stock price, P₀, is $29.00. The current risk-free rate, r_RF, = 4.6%; the market risk premium, RP_M, = 5.9%, and the firm's stock has a current beta, b, = 1.1. Assume that the firm's cost of debt, r_d, is 7.94%. The firm uses a 3.9% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.

CAPM cost of equity:	%
Bond yield plus risk premium:	%
DCF cost of equity:	%

2.

Kahn Inc. has a target capital structure of 45% common equity and 55% debt to fund its $9 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, 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 (D₁) is $4, and the current stock price is $30.

1. What is the company's expected growth rate? Round your answer to two decimal places at the end of the calculations. Do not round your intermediate calculations. %
3. 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? (Hint: Refer to Equation below.) Growth rate = (1 - Payout ratio)ROE Round your answer to two decimal places at the end of the calculations. Do not round your intermediate calculations.