15. Problem 10.15 (WACC and Cost of Common Equity)

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Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 16%, a before-tax cost of debt of 12%, 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 $4, and the current stock price is $31.

1. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places.

   %

2. 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? Do not round intermediate calculations. Round your answer to two decimal places. (Hint: Refer to Equation below.)

   Growth rate = (1 - Payout ratio)ROE

   %