Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. 6.00 Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D1/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. -5.44 % Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. 2.57 %
Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. 6.00 Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D1/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. -5.44 % Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. 2.57 %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![The following table gives Foust Company's earnings per share for the last 10 years. The
common stock, 7.8 million shares outstanding, is now (1/1/22) selling for $77.00 per
share. The expected dividend at the end of the current year (12/31/22) is 45% of the 2021
EPS. Because investors expect past trends to continue, g may be based on the historical
earnings growth rate. (Note that 9 years of growth are reflected in the 10 years of data.)
Year
EPS
Year
EPS
2012
$3.90
2017
$5.73
2013
4.21
2018
6.19
2014
4.55
2019
6.68
2015
4.91
2020
7.22
2016
5.31
2021
7.80
The current interest rate on new debt is 8%; Foust's marginal tax rate is 25%; and its
target capital structure is 30% debt and 70% equity.
a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places.
6.00
Calculate Foust's cost of common equity. Calculate the cost of equity as rs =
D1/Po + g.
Do not round intermediate calculations. Round your answer to two decimal places.
-5.44
%
b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two
decimal places.
2.57
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00e39c23-5382-4320-a2d9-cf042c74097f%2Fcea9ce52-4214-40f1-964a-426714179ec4%2Fsuk24b9_processed.png&w=3840&q=75)
Transcribed Image Text:The following table gives Foust Company's earnings per share for the last 10 years. The
common stock, 7.8 million shares outstanding, is now (1/1/22) selling for $77.00 per
share. The expected dividend at the end of the current year (12/31/22) is 45% of the 2021
EPS. Because investors expect past trends to continue, g may be based on the historical
earnings growth rate. (Note that 9 years of growth are reflected in the 10 years of data.)
Year
EPS
Year
EPS
2012
$3.90
2017
$5.73
2013
4.21
2018
6.19
2014
4.55
2019
6.68
2015
4.91
2020
7.22
2016
5.31
2021
7.80
The current interest rate on new debt is 8%; Foust's marginal tax rate is 25%; and its
target capital structure is 30% debt and 70% equity.
a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places.
6.00
Calculate Foust's cost of common equity. Calculate the cost of equity as rs =
D1/Po + g.
Do not round intermediate calculations. Round your answer to two decimal places.
-5.44
%
b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two
decimal places.
2.57
%
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