Kahn Inc. has a target capital structure of 70% common equity and 30% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 14%, a before-tax cost of debt of 11%, 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 $28.
Calculation of company's expected growth rate:
Firstly,we have to find out cost of equity(k)
we know that,WACC=Cost of equity*%equity+Cost of Debt*%debt(1-tax rate)
Now for calculation of growth rate
P=current price of stock
D=Next year dividend
R=Company cost of equity
b)Calculation of Payout ratio:
Growth rate=(1-payout ratio)ROE
Get Answers For Free
Most questions answered within 1 hours.