The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.1 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 11%; 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. 14.55 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. 10.89 % b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. 14.55
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.1 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 11%; 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. 14.55 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. 10.89 % b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. 14.55
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...
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Transcribed Image Text:The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.1 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 11%; 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.
14.55
%
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.
10.89
b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places.
14.55
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