Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $103.00, but flotation costs will be 9% of the market price, so the net price will be $93.73 per share. What is the cost of the preferred stock, including flotation?

Kahn Inc. has a target capital structure of 45% common equity and 55% debt to fund its $12 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 14%, 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 $3, and the current stock price is $26.

1. What is the company's expected growth rate?

2. If the firm's net income is expected to be $1.0 billion, what portion of its net income is the firm expected to pay out as dividends? Do not round intermediate calculations. (Hint: Refer to Equation below.)

   Growth rate = (1 - Payout ratio)ROE