Kahn Inc. has a target capital structure of 55% common equity and 45% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 9%, 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 (D) is $2, and the current stock price is $31. a. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. b. 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. Round your answer to two decimal places. (Hint: Refer to Equation below.) Growth rate-(1-Payout ratio)ROE
Kahn Inc. has a target capital structure of 55% common equity and 45% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 9%, 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 (D) is $2, and the current stock price is $31. a. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. b. 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. Round your answer to two decimal places. (Hint: Refer to Equation below.) Growth rate-(1-Payout ratio)ROE
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 9P
Related questions
Question
![Kahn Inc. has a target capital structure of 55% common equity and 45% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%,
a before-tax cost of debt of 9%, 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 $2, and the current stock price is $31.
O
a. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places.
%
b. 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. Round your answer to two decimal places. (Hint: Refer to Equation below.)
Growth rate-(1-Payout ratio) ROE](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd92c940c-7d6c-43fb-b8d4-22d2d7c12f5c%2Ffa62d5b8-550a-4ba6-8734-7605453e5057%2Ffq6yuz5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Kahn Inc. has a target capital structure of 55% common equity and 45% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%,
a before-tax cost of debt of 9%, 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 $2, and the current stock price is $31.
O
a. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places.
%
b. 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. Round your answer to two decimal places. (Hint: Refer to Equation below.)
Growth rate-(1-Payout ratio) ROE
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