CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
14th Edition
ISBN: 9780357292839
Author: MOYER
Publisher: CENGAGE L
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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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The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.0 million
shares outstanding, is now (1/1/22) selling for $63.00 per share. The expected dividend at the end of the current
year (12/31/22) is 50% 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 8%; Foust's marginal tax rate is 25%; and its target capital structure is
55% debt and 45% equity.
a. 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; = D1/Po + g. Do not round
intermediate calculations. Round your answer to two decimal places.
%
b. Find Foust's WACC. Do not round…
Stewart Industries expects to pay a $3.00 per share dividend on its common stock at the end
of the year (i.e. D1 = $3.00). The dividend is expected to grow 25 percent a year until t = 3,
after which time the dividend is expected to grow at a constant rate of 5 percent a year (i.e.
D3 = $4.6875 and D4 = $4.9219). The stock’s beta is 1.2, the risk-free rate of interest is 6 percent, and the market risk premium (i.e., rm –rrf) is 5 percent. What is the company’s current stock price?
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…
Chapter 12 Solutions
CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
Ch. 12 - Prob. 1QTDCh. 12 - Prob. 2QTDCh. 12 - Prob. 3QTDCh. 12 - Prob. 4QTDCh. 12 - Prob. 5QTDCh. 12 - Prob. 6QTDCh. 12 - Prob. 7QTDCh. 12 - Prob. 8QTDCh. 12 - Prob. 9QTDCh. 12 - Prob. 10QTD
Ch. 12 - Prob. 11QTDCh. 12 - Prob. 12QTDCh. 12 - Prob. 13QTDCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10PCh. 12 - Prob. 11PCh. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Prob. 23PCh. 12 - Prob. 24PCh. 12 - Prob. 26P
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