Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its $11 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 15%, 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 $3, and the current stock price is $35. 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 $1.9 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 60% common equity and 40% debt to fund its $11 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 15%, 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 $3, and the current stock price is $35. 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 $1.9 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 60% common equity and 40%
debt to fund its $11 billion in operating assets. Furthermore, Kahn Inc. has
a WACC of 15%, 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
$3, and the current stock price is $35.
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 $1.9 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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