Kahn Inc. has a target capital structure of 50% common equity and 50% debt to fund its $8 billion in operating assets. Furthermore,Kahn Inc. has a WACC of 16%, a before-tax cost of debt of 10%, and a tax rate of 25%. The company's retained earnings areadequate to provide the common equity portion of its capital budget. Its expected dividend next year (D₁) is $4, and the currentstock 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 $1.3 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%

The growth rate can be found by using the dividend discount model which is as follows:The another…

Answered: Kahn Inc. has a target capital…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 9P

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Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 16%, a before-tax cost of debt of 12%, 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 $3, and the current stock price is $27. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % If the firm's net income is expected to be $1.2 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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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 ofits capital budget. Its expected dividend next year (D1) is $3, and the current stock priceis $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 isthe firm expected to pay out as dividends?
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