Calculate foust after tax cost of debt and common equity

Assignment Help Financial Management
Reference no: EM131896773

WACC

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 per share. The expected dividend at the end of the current year (12/31/16) is 55% of the 2015 EPS. because investors expect pay 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

2006 $3.90

2007 $4.21

2008 $4.55

2009 $4.91

2010 $5.31

2011 $5.73

2012 $6.19

2013 $6.68

2014 $7.22

2015 $7.80

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 Fout's WACC.

Reference no: EM131896773

Questions Cloud

Explain complexity of capital decision-making process : Explain the complexity of the capital decision-making process in the health-care industry.
Discounted payback period if discount rate is zero percent : What is the discounted payback period if the discount rate is zero percent?
The common stock of alpha manufacturers : The common stock of Alpha Manufacturers has a beta of 3.14 and an actual expected return of 15.26 percent.
What is meant by buying bond indirectly : What is meant by buying bond indirectly?
Calculate foust after tax cost of debt and common equity : Calculate Foust's after tax cost of debt and common equity. Calculate the cost of equity as rs=D1/P0+G
What is the market debt-to-value ratio of the firm : Examine the following book-value balance sheet for University Products Inc. What is the market debt-to-value ratio of the firm? What is University’s WACC?
What is company total market value of debt : What is the company's total book value of debt? What is your best estimate of the aftertax cost of debt? What is the company’s total market value of debt?
What is garbanzo corporation expected current share price : What is the expected return on the portfolio? what is Garbanzo Corporation's expected current share price?
Constant growth valuation-stock price is expected one year : Constant growth valuation-What stock price is expected 1 year from now? What is the required rate of return?

Reviews

Write a Review

Financial Management Questions & Answers

  Calculate the total cost per year to to order and carry

Sock Company sells almost exact 200 units of a product per month on a continuous basis. The product carrying costs are 60 dollars per year and ordering costs are 250 dollars per order. It takes 20 days to receive a shipment after an order is placed a..

  Share price today if investment is financed with? debt

What is? Kohwe's share price today if the investment is financed with? debt?

  What are the bank''s excess reserves

First National Bank has reserves of $80, loans of $520, and checkable deposits of $600. what are the bank's excess reserves?

  Compute net profit margin and total asset turnover

Compute the Net profit margin, Return on assets, Total asset turnover, DuPont analysis, Return on investment, Return on total equity for 2011, 2010, and 2009:

  What will be the value of each of these bonds

What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%?

  Compare these alternatives using the present-worth method

Compare these alternatives using the present-worth method and identify any that are not economically feasible.

  What is the price per share of equity under plan

Cooke Co. is comparing two different capital structures. Plan I would result in 8,500 shares of stock and $448,500 in debt. Plan II would result in 12,000 shares of stock and $312,000 in debt. The interest rate on the debt is 9 percent. The all-equit..

  What is the beta of the portfolio

Suppose that you are the money manager of the following fund: a $1.5mln investment in Dell, a $1mln investment in IBM, and a $0.5mln investment in Microsoft. If the beta of Dell is estimated to be 0.5, the beta of IBM is estimated to be 1.0 and the b..

  New sausage system-what is the NPV of this project

Kolby's Korndogs is looking at a new sausage system with an installed cost of $655,000. what is the NPV of this project?

  What is the present value of the tax shield to a firm

What is the present value of the tax shield to a firm that has a capital structure consisting of $100million of perpetual debt and $180 million of equity, if then average interest rate on debt is 9%, the return on equity is 13%, and the marginal tax ..

  Gross income with respect to foregoing transaction

What must X include in gross income with respect to the foregoing transaction in 2015?

  What is the bond current yield and bonds total yield

Suppose that a bond pays an 11% annual coupon, has a par value of 1000, has a current market price of $978, and was originally bought for $989. What is the bond's current yield? What is the bond's total yield?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd