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WACC
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.5 million shares outstanding, is now (1/1/17) selling for $61 per share. The expected dividend at the end of the current year (12/31/17) is 55% of the 2016 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
2007 $3.90 2012 $5.73
2008 4.21 2013 6.19
2009 4.55 2014 6.68
2010 4.91 2015 7.22
2011 5.31 2016 7.80
The current interest rate on new debt is 8%; Foust's marginal tax rate is 40%; and its target capital structure is 40% debt and 60% 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. Do not round your intermediate calculations.
Find Foust's WACC. Round your answer to two decimal places. Do not round your intermediate calculations.
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