Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fu
ID: 2622880 • Letter: K
Question
Kahn Inc. has a target capital structure of 40% common equity and 60% 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 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 $20.
a. What is the company's expected growth rate? Round your answer to two decimal places at the end of the calculations.
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? (Hint: Refer to Equation below.)
Growth rate = (1 - Payout ratio)ROE
Round your answer to two decimal places at the end of the calculations.
Explanation / Answer
Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fu
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