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

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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.

    %

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