a. What is the company’s expected growth rate? b. If the firm’s net income is expected to be $1.1 billion, what portion of its net income is the firm expected to pay out as dividends?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 11P
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Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 10%, 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 $3, and the current stock price is $35.
a. What is the company’s expected growth rate?
b. If the firm’s net income is expected to be $1.1 billion, what portion of its net income is the firm expected to pay out as dividends? (Hint: Refer to Equation 9.4 in Chapter 9.)

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