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10.1The following table gives Foust Company's earnings per share for the last 10 years. The common...

10.1The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.2 million shares outstanding, is now (1/1/20) selling for $77.00 per share. The expected dividend at the end of the current year (12/31/20) is 60% 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 EPS
2010 $3.90 2015 $5.73
2011 4.21 2016 6.19
2012 4.55 2017 6.68
2013 4.91 2018 7.22
2014 5.31 2019 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.

  1. 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.

    %

  2. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places.

    %

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jeff jeffy answered 3 months ago
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