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 12%, a before-tax cost of debt of 11%,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 stockprice is $31.a. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places.10.42%b. If the firm's net income is expected to be $1.7 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 twodecimal places. (Hint: Refer to Equation below.)Growth rate = (1 Payout ratio) ROE1.6%

Weight of Equity = we = 55%Weight of Debt = wd = 45%Assets = a = $8 billionWeighted Average Cost of…

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 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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