The following table gives Foust Company's earnings per share for the last 10 years. The common stock,
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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 00 per share. The expected dividend at the end of the current year (12/31/16) is 55% of the 2015 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.)
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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 Foust's WACC.
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For 
Fundamentals of Financial Management
ISBN: 978-1285867977
14th edition
Authors: Eugene F. Brigham, Joel F. Houston
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