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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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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