Calculate cost of common equity and after-tax cost of debt

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Reference no: EM131180445

The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 6.7 million shares outstanding, is now (1/1/15) selling for $68 per share. The expected dividend at the end of the current year (12/31/15) is 60% 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.) 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 7.80 The current interest rate on new debt is 11%; Foust's marginal tax rate is 40%; and its target capital structure is 45% debt and 55% equity.

a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. _____%

b. Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D1/P0 + g. Round your answer to two decimal places. ____%

c. Find Foust's WACC. Round your answer to two decimal places. ____%

Reference no: EM131180445

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