xM5 Homework Mind Tap-Cengage Learni! × Ve NPV Project L Costs S350 × e Project
ID: 2790013 • Letter: X
Question
xM5 Homework Mind Tap-Cengage Learni! × Ve NPV Project L Costs S350 × e Project L Costs S35,000, MyUSF D Not Secure x C ng cengage.com/static/nb/ui/index.html?nbld-580719&nbNodelds210996104;&deploymentid-55165121; 505348353947115799&eisBN..; MINDTAP From Cengugs Carlos Rosado Vega 15 Homework Due on Nov 26 at 11:59 PM EST 10. o Click here to read the eBook: The Cost of Retained Earnings, rs Click here to read the eBook: Composite, or Weighted Average, Cost of Capital, WACC WACC AND COST OF COMMON EQUITY Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its s9 bilion in operating assets. Further o e, ka n lnc as a wACCof 15%, a before tax cost of debt of 8%, and a tax rate of 40%. The companys retained earnings are adequate to provide the common eauty potion of its capital budget. Its expected dividend next year (Di) is $4, and the current stock price is $27 12. 13 O 14. 15a what is the company's expected growth rate? Round your answer to two decimal places at the end of the calculations. Do not round your intermediate 16. calculations. T NAME 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? (Hint: Refer to Equation 1B. 19. 20. below.) Growth rate (1- Payout ratio)ROE Round your answer to two decimal places at the end of the calculations. Do not round your intermediate calculations. Check My Work Icon KeyExplanation / Answer
Let cost of equity be x, then WACC calculation:
as per above 0.0192+ 0.6x= 0.15, x= 21.8%
As per growth model, stock price= dividend next year/(cost of equity-growth rate)
27= 4/(21.8%-g)
g= 6.99%
a. Hence growth rate= 6.99%
b. Equity amount= 9 billion *60%= 5.4 billion
ROE= Net income/equity= 1B/5.4B= 18.52%
As per the given equation
6.99%= (1-payout)18.52%
Payout= 62.26%
Capital Weight After tax cost of capital Weighted cost Debt 40% 4.8% 0.0192 Equity 60% x 0.6x WACC 0.15Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.