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.)YearEPS YearEPS2012$3.90 2017$5.7320134.21 20186.1920144.55 20196.6820154.91 20207.2220165.31 20217.80The 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 = $4.21-$3.90 $3.90×100 = $4.55 - $4.21$4.21×100 = $4.91 - $4.55$4.55×100 =$5.31…

Answered: he following table gives Foust…

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter10: The Cost Of Capital

Section: Chapter Questions

Problem 21SP: CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in...

See similar textbooks

Related questions

Question

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 r_s = 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.

%

Expert Solution

Step 1 : Working notes

Growth rate = $\frac{$ 4.21 - $ 3.90}{$ 3.90} \times 100 = \frac{$ 4.55 - $ 4.21}{$ 4.21} \times 100 = \frac{$ 4.91 - $ 4.55}{$ 4.55} \times 100 = \frac{$ 5.31 - $ 4.91}{$ 4.91} \times 100$

= $\frac{$ 5.73 - $ 5.31}{$ 5.31} \times 100 = \frac{$ 6.19 - $ 5.73}{$ 5.73} \times 100 = \frac{$ 6.68 - $ 6.19}{$ 6.19} \times 100 = \frac{$ 7.22 - $ 6.68}{$ 6.68} \times 100$