1) Kahn Inc. has target capital structure of 60% common equity and 40% debt to fund its $9 billion in operating assets. Also, Kahn Inc. has WACC of 14%, a before-tax cost of debt of= 8%, and a tax rate of= 40%. The company's retained earnings are sufficient to give common equity portion of its capital budget. Its expected dividend next year (D1) is $3 and the present stock price is $21.
i) Determine the company's expected growth rate?
ii) If firm's net income is expected to be $1.6 billion, what portion of its net income is firm expected to pay out as dividends?
2) Ballack Co.’s common stock presently sells for= $36.50 per share. Growth rate is constant= 10.8%, and company has the expected dividend yield of= 6%. Expected long-run dividend payout ratio is 40%, and expected return on equity (ROE) is 18%. New stock can be sold to public at present price, but flotation cost of= 15% would be incurred. Determine cost of new equity?