Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.6 million shares outstanding, is now (1/1/19) selling for $74 per share. The expected dividend at the end of the current year (12/31/19) is 65% of the 2018 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 | |
| 2009 | $3.90 | 2014 | $5.73 | |
| 2010 | 4.21 | 2015 | 6.19 | |
| 2011 | 4.55 | 2016 | 6.68 | |
| 2012 | 4.91 | 2017 | 7.22 | |
| 2013 | 5.31 | 2018 | 7.80 |
The current interest rate on new debt is 9%; Foust's marginal tax rate is 40%; and its target capital structure is 35% debt and 65% equity.
A) Calculate Foust's after-tax cost of debt. Round your answer to two decimal places.
%
B) Calculate Foust's cost of common equity. Calculate the
%
C) Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places.
%
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