Question
CH 10-20 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
CH 10-20
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 (1/1/16) selling for $65 per share. The expected dividend at the end of the current year (12/31/16) is 55% of the 2015 EPS. because investors expect pay 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
2006 $3.90
2007 $4.21
2008 $4.55
2009 $4.91
2010 $5.31
2011 $5.73
2012 $6.19
2013 $6.68
2014 $7.22
2015 $7.80
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 rs=D1/P0+G
B) Find Fout's WACC.
Please provide clear answer and complete in excel. Thank you
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