EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 10P
a)
Summary Introduction
To determine: Whether the investor should purchase or not.
b)
Summary Introduction
To determine: The
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Chapter 12 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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- The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 6.3 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 40% 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.) 6.75 % 27.31 Year 2012 % 2013 % 2014 2015 EPS $3.90 4.21 4.55 4.91 .60 b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. Year 2017 $5.73 2018 2016 5.31 The current interest rate on new debt is 9%; Foust's marginal tax rate is 25%; and its target capital structure is 40% debt and 60% equity. a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. 2019 2020 EPS 2021 6.19 Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D₁/Po + g. Do not round…arrow_forwardThe 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 cost of equity as rs = D1/P0 + g. Do not round intermediate calculations. Round your answer to two decimal places. % C) Find…arrow_forwardJanlea Co. had total net earnings of $158,600 this past year and paid out 60 percent of those earnings in dividends. There are 84,000 shares of stock outstanding at a current market price of $18.43 a share. If the dividend growth rate is 2.8 percent, what is the required rate of return?arrow_forward
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