The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 6.5 million shares outstanding, is now (1/1/22) selling for $53.00 per share. The expected dividend at the end of the current year (12/31/22) is 55%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.)YearEPSYear2012 $3.902017EPS$5.7320134.2120186.1920144.5520196.6820154.9120207.2220165.3120217.80The current interest rate on new debt is 9%; Foust's marginal tax rate is 25%; and its target capital structure is 50% debt and 50% equity.a. 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/Po + g. Do not round intermediate calculations. Round your answer to two decimal places.%b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places.%

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Description: The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 6.5 million shares outstanding, is now (1/1/22) selling for $53.00 per share. The expected dividend at the end of the current year (12/31/22) is 55

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The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 6.5 million shares outstanding, is now (1/1/22) selling for $53.00 per share. The expected dividend at the end of the current year (12/31/22) is 55% 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 2012 $3.90 EPS 2017 $5.73 2013 4.21 2018 6.19 2014 4.55 2019 6.68 2015 2016 4.91 5.31 2020 7.22 2021 7.80 The current interest rate on new debt is 9%; Foust's marginal tax rate is 25%; and its target capital structure is 50% debt and 50% equity. a. 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/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. % b. 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, 6.5 million shares outstanding, is now (1/1/22) selling for $53.00 per share. The expected dividend at the end of the current year (12/31/22) is 55% 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 2012 $3.90 EPS 2017 $5.73 2013 4.21 2018 6.19 2014 4.55 2019 6.68 2015 2016 4.91 5.31 2020 7.22 2021 7.80 The current interest rate on new debt is 9%; Foust's marginal tax rate is 25%; and its target capital structure is 50% debt and 50% equity. a. 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/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. % b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 2P

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