Problem #3 -- ANALYTICAL THINKING AND CONCEPT INTEGRATION: Kahn Inc. (KI) is a distributor of intellectual property. Suppose that you are a member of the financial analyst team at Franklin Templeton Investments (FTI) and have ascertained the following about KI as of June 15, 2018:

KIs management desires to maintain a target capital structure of 60% common equity and 40% debt to fund its $10 billion in operating assets.

KIs WACC is 13%;

KI has a before-tax cost of debt of 10%, and a corporate tax rate of 25%;

KIs forecast net income is expected to be $1.1 billion;

KIs retained earnings (aka, internally generated funds) are sufficient to cover all of the equity portion of its capital budget; that is, Ki will not need to issue new common stock for any upcoming capital expenditures (CAPEX);

KIs expected dividend next year is $3 per common share;

KIs current stock price is $35.

HINTS: See BH.09 section 9.5B, self-test example ST2, and this related instructional video at https://www.youtube.com/watch?v=2HD4e1jYulU

TASKS: Please -

Define a corporations sustainable growth rate and its significance to that corporations capital structure and capital budget;

Calculate KIs expected growth rate;

Determine the portion of KIs income that it will be expected to pay out as dividends to shareholders if it adheres to its target debt : equity ratio.

Based on the financial information you have developed for this case scenario, forecast KIs assets, liabilities, and shareholders equity for its next fiscal year ended June 15, 2019. Be sure to state assumptions and logic !