Question
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.7 million shares outstanding, is now (1/1/22) selling
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.7 million shares outstanding, is now (1/1/22) selling for $68.00 per share. The expected dividend at the end of the current year (12/31/22) is 45% 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.)
The current interest rate on new debt is 12%; Foust's marginal tax rate is 25%; and its target capital structure is 55% debt and 45% equity.
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