Kahn Inc. has a target capital structure of 70% common equity and 30% debt to fund its
Question:
Kahn Inc. has a target capital structure of 70% common equity and 30% debt to fund its $9 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 15%, a before-tax cost of debt of 10%, 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 $4, and the current stock price is $33.
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 $1.4 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
____ %
Corporate Finance
ISBN: 9781259270116
8th Canadian Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Roberts, Hamdi Driss