Kahn Inc. has a target capital structure of 60%common equity and 40% debt to fund its $10 billion in operating assets. Furthermore,Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 10%, and a tax rate of 40%.The company’s retained earnings are adequate to provide the common equity portion ofits capital budget. Its expected dividend next year (D1) is $3, and the current stock priceis $35.a. What is the company’s expected growth rate?b. If the firm’s net income is expected to be $1.1 billion, what portion of its net income isthe firm expected to pay out as dividends?
Kahn Inc. has a target capital structure of 60%common equity and 40% debt to fund its $10 billion in operating assets. Furthermore,Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 10%, and a tax rate of 40%.The company’s retained earnings are adequate to provide the common equity portion ofits capital budget. Its expected dividend next year (D1) is $3, and the current stock priceis $35.a. What is the company’s expected growth rate?b. If the firm’s net income is expected to be $1.1 billion, what portion of its net income isthe firm expected to pay out as dividends?
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 11P
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Question
Kahn Inc. has a target capital structure of 60%
common equity and 40% debt to fund its $10 billion in operating assets. Furthermore,
Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 10%, and a tax rate of 40%.
The company’s
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?
b. If the firm’s net income is expected to be $1.1 billion, what portion of its net income is
the firm expected to pay out as dividends?
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