he following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.7 million shares outstanding, is now (1/1/22) selling for $56.00 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 10%; Foust's marginal tax rate is 25%; and its target capital structure is 45% debt and 55% equity. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. % Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D1/P0 + g. Do not round intermediate calculations. Round your answer to two decimal places. % Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. %
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.7 million shares outstanding, is now (1/1/22) selling for $56.00 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 10%; Foust's marginal tax rate is 25%; and its target capital structure is 45% debt and 55% equity.
-
Calculate Foust's after-tax cost of debt. Round your answer to two decimal places.
%
Calculate Foust's cost of common equity. Calculate the
cost of equity as rs = D1/P0 + g. Do not round intermediate calculations. Round your answer to two decimal places.%
-
Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places.
%
- Growth rate =
=
= 8% ( approx )
- D1 = $7.80 x 45% = $3.51
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