Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 20. problem 10.20 (wacc) ebook the followin

20. Problem 10.20 (WACC) eBook The following table...

60.1K

Verified Solution

Question

Finance

20. Problem 10.20 (WACC)

eBook

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 (1/1/22) selling for $74.00 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.)

Year EPS Year EPS
2012 $3.90 2017 $5.73
2013 4.21 2018 6.19
2014 4.55 2019 6.68
2015 4.91 2020 7.22
2016 5.31 2021 7.80

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.

  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.

    %

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

A C TC 3 13 cos 1 1 A 73 C 9 15 sin cot...

Calculus
Q

Tom purchased 100 shares of Dalia Co. stock at a price of $125.01 four months ago....

Finance
Q

1. Show all the different kinds of gametes which could be produced by the following individuals? a)...

Biology
Q

Take one step of Newton’s method to approximate a solution to the complex equation z ^5...

Advance Math
Q

• What should auditor do when risk of fraud with regards to cash is increased? • What are...

Accounting
Q

Mate attracting features such as the bright plumage of a male peacock result from Ointrasexual...

Biology
Q

A newspaper published an article about a study in which researchers subjected laboratory gloves to...

Statistics
Q

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15...

Statistics
Q

After they married in January 2022, a couple rented Sams house out. They required the...

Accounting
Q

I need this ASAP, please help out ...

Accounting
Q

Star Companys manager, Tom, is thinking about production of a new product. Tom is considering...

Accounting
Q

Use NOKIA CORPORATION: Provide a solution or alternate approach to any financial...

Finance