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 (1/1/15) 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 (1/1/15) selling for $56 per share. The expected dividend at the end of the current year (12/31/15) is 50% of the 2014 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 8%; Foust's marginal tax rate is 40%; and its target capital structure is 30% debt and 70% equity.
Calculate the after tax cost of debt-
Calculate Foust's cost of common equity-
Find Foust's WACC-
Year EPS Year EPS 2005 $3.90 2010 $5.73 2006 4.21 2011 6.19 2007 4.55 2012 6.68 2008 4.91 2013 7.22 2009 5.31 2014 7.80Step by Step Solution
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