Kahn Inc. has a target capital structure of 45% common equity and 55% debt to fu

Question

Kahn Inc. has a target capital structure of 45% common equity and 55% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 12%, a before-tax cost of debt of 9%, 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 $2, and the current stock price is $20.

a) 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.
10.06 %

b) 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.
%

I can't figure out part b

Explanation / Answer

Growth rate=2/20+(12%-55%*9%*(1-40%))/45%=30.067%

Payout ratio=1-30.067%/(1.8/(45%*8))=39.768%

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