Question
In: Finance
WACC The following table gives Foust Company's earnings per share for the last 10 years. The...
WACC
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.2 million shares outstanding, is now (1/1/17) selling for $77 per share. The expected dividend at the end of the current year (12/31/17) is 40% 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.)
| Year | EPS | Year | EPS | |
| 2007 | $3.90 | 2012 | $5.73 | |
| 2008 | 4.21 | 2013 | 6.19 | |
| 2009 | 4.55 | 2014 | 6.68 | |
| 2010 | 4.91 | 2015 | 7.22 | |
| 2011 | 5.31 | 2016 | 7.80 |
The current interest rate on new debt is 11%; Foust's marginal tax rate is 40%; and its target capital structure is 40% debt and 60% 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. Round your answer to two decimal places. Do not round your intermediate calculations.
% - Find Foust's WACC. Round your answer to two decimal places. Do
not round your intermediate calculations.
%
Solutions
jeff jeffy answered 7 months agoRelated Solutions
WACC The following table gives Foust Company's earnings per share for the last 10 years. The...
WACC
The following table gives Foust Company's earnings per share for
the last 10 years. The common stock, 7.5 million shares
outstanding, is now (1/1/17) selling for $61 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.)
Year EPS...
The following table gives Foust Company's earnings per share for the last 10 years. The common...
The following table gives Foust Company's earnings per share for
the last 10 years. The common stock, 7.6 million shares
outstanding, is now (1/1/20) selling for $70.00 per share. The
expected dividend at the end of the current year (12/31/20) is 55%
of the 2019 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...
The following table gives Foust Company's earnings per share for the last 10 years. The common...
The following table gives Foust Company's earnings per share for
the last 10 years. The common stock, 8.6 million shares
outstanding, is now (1/1/17) selling for $77 per share. The
expected dividend at the end of the current year (12/31/17) is 50%
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.)
Year
EPS
Year...
The following table gives Foust Company's earnings per share for the last 10 years. The common...
The following table gives Foust Company's earnings per share for
the last 10 years. The common stock, 7.2 million shares
outstanding, is now (1/1/17) selling for $60 per share. The
expected dividend at the end of the current year (12/31/17) is 60%
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.) Year EPS
Year...
Over the last 10? years, a firm has had the earnings per share shown in the...
Over the last 10? years, a firm has had the earnings per share
shown in the following? table:
.
2015
$1.50
2010
$3.55
2014
$3.01
2009
$1.76
2013
$3.73
2008
$1.76
2012
$2.93
2007
-$1.31
2011
$4.81
2006
$0.56
a.??If the? firm's dividend policy were based
on a constant payout ratio of? 40% for all years with positive
earnings and? 0% otherwise, what would be the annual dividend
for
2015??
b.??If the firm had a dividend payout of? $1.00
per?...
Alternative dividend policies Over the last 10 years, a firm has had the earnings per share...
Alternative dividend policies Over the last 10 years, a firm
has had the earnings per share shown in the following table:
Year
Earnings per Share
Year
Earnings per Share
2019
$1.50
2014
$2.19
2018
$3.93
2013
$1.18
2017
$3.76
2012
$1.18
2016
$3.99
2011
-$1.07
2015
$3.93
2010
$0.85
a. If the firm's dividend policy were based on a constant
payout ratio of 40% for all years with positive earnings and 0%
otherwise, what would be the annual dividend for...
The price of a share of stock divided by the company's estimated future earnings per share...
The price of a share of stock divided by the company's estimated
future earnings per share is called the P/E ratio. High P/E ratios
usually indicate "growth" stocks, or maybe stocks that are simply
overpriced. Low P/E ratios indicate "value" stocks or bargain
stocks. A random sample of 51 of the largest companies in the
United States gave the following P/E ratios†.
11
35
19
13
15
21
40
18
60
72
9
20
29
53
16
26
21
14...
The price of a share of stock divided by the company's estimated future earnings per share...
The price of a share of stock divided by the company's estimated
future earnings per share is called the P/E ratio. High P/E ratios
usually indicate "growth" stocks, or maybe stocks that are simply
overpriced. Low P/E ratios indicate "value" stocks or bargain
stocks. A random sample of 51 of the largest companies in the
United States gave the following P/E ratios†.
11
35
19
13
15
21
40
18
60
72
9
20
29
53
16
26
21
14...
Company ABC has just announced earnings of $2 per share. Based on the last five years,...
Company ABC has just announced earnings of $2 per share. Based
on the last five years, earnings have grown at a rate of 20% per
annum and the company expects this to continue for the next five
years, after which it expects earnings to remain constant forever.
The company has a policy of paying out 30% of its earnings as
dividends. ABC stock has a beta of 1.2. The yield to maturity on
10-year government bonds is 2% and market...
Company ABC has just announced earnings of $2 per share. Based on the last five years,...
Company ABC has just announced earnings of $2 per share. Based
on the last five years, earnings have grown at a rate of 20% per
annum and the company expects this to continue for the next five
years, after which it expects earnings to remain constant forever.
The company has a policy of paying out 30% of its earnings as
dividends. ABC stock has a beta of 1.2. The yield to maturity on
10-year government bonds is 2% and market...
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