Wacc and cost of common equity kahn inc has a target, Ask an Expert

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WACC AND COST OF COMMON EQUITY 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 of 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? (Hint: Refer to Equation 9.4 in Chapter 9.)

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