WACC AND COST OF COMMON EQUITY Kahn Inc. has a target capital structure of 60% c

Question

WACC AND COST OF COMMON EQUITY

Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its $9 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 8%, 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 $2, and the current stock price is $23.

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 calculations.
%

If the firm's net income is expected to be $1.3 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. Do not round your intermediate calculations.
%

Explanation / Answer

Debt Equity 40% 60% Fund    3,60,00,00,000     5,40,00,00,000 WACC=WD*Kd*(1-t)+We*Ke 18%=.4*8%(1-.4)+.6Ke 0.1608=.6ke Ke=26.8% p0=23 23 ke=2/23+g 26.8=2/23+g g=26.71% Current Equity =equity/price per share         23,47,82,609 Each share is expected to get 2 Total Dividend 46,95,65,217.39 Expected income     1,30,00,00,000 Payout ratio 36.12%

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.