WACC The following table gives Foust Company\'s earnings per share for the last
ID: 2649252 • Letter: W
Question
WACC
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.6 million shares outstanding, is now (1/1/15) selling for $76 per share. The expected dividend at the end of the current year (12/31/15) is 65% 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 35% debt and 65% equity.
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. Round your answer to two decimal places.
_____%
Find Foust's WACC. Round your answer to two decimal places.
_____ %
Explanation / Answer
After tax cost of debt = Interest rate(1 -tax)
= 8(1-.40)
= 4.8%
Cost of equity = Rs = D1/(Ke-g)
76= 5.07 ( X- .08)
X-.08 = 5.07/76
X = .0667+.0803
X(cost of equity ) = 14.70 %
**Dividend = 65% (7.80 ) =5.07
**Growth =Change in EPS*100/Eps of previous year
=Growth for 2006 = 7.80-7.22)*100/7.22
=8.03%
you can also calculate growth rate for each year and then take average to calculate growth of current year
3)
WACC =1.68+9.555 = 11.235%
11.24%(approx)
cost(A) weights(B) weighted average(A*B) Debt 4.80 .35 1.68 equity 14.70 .65 9.555Related Questions
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