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WACC The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.8 million shares outstanding, is now (1/1/17) selling for $65.00 per share. The expected dividend at the end of the current year (12/31/17) is 55% of the 2016 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.) The current interest rate on new debt is 9%; Foust’s marginal tax rate is 40%; and its target capital structure is 40% debt and 60% equity. a. Calculate Foust’s after-tax cost of debt and common equity. Calculate the cost of equity as r s = D 1 /P 0 + g. b. Find Foust's WACC.

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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937
BuyFind

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937

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Chapter
Section
Chapter 10, Problem 20P
Textbook Problem

WACC The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.8 million shares outstanding, is now (1/1/17) selling for $65.00 per share. The expected dividend at the end of the current year (12/31/17) is 55% of the 2016 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.)

Chapter 10, Problem 20P, WACC The following table gives Foust Company's earnings per share for the last 10 years. The common

The current interest rate on new debt is 9%; Foust’s marginal tax rate is 40%; and its target capital structure is 40% debt and 60% equity.

  1. a. Calculate Foust’s after-tax cost of debt and common equity. Calculate the cost of equity as rs = D1/P0 + g.
  2. b. Find Foust's WACC.

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