The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.1 million sharesoutstanding, is now (1/1/22) selling for $56.00 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 earningsgrowth rate. (Note that 9 years of growth are reflected in the 10 years of data.)YearEPSYearEPS2012$3.902017$5.7320134.2120186.1920144.5520196.6820154.9120207.2220165.3120217.80The current interest rate on new debt is 11%; Foust's marginal tax rate is 25%; and its target capital structure is 50%debt and 50% equity.a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places.14.55%Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D1/Po + g. Do not round intermediatecalculations. Round your answer to two decimal places.10.89b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places.14.55

Weighted Average Cost of Capital (WACC) efficiently depicts the position of firm and evaluates the…

Answered: The following table gives Foust…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

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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 (1/1/19) selling for $65.00 pershare. The expected dividend at the end of the current year (12/31/19) is 55% of the 2018EPS. Because investors expect past trends to continue, g may be based on the historicalearnings growth rate. (Note that 9 years of growth are reflected in the 10 years of data.) The current interest rate on new debt is 9%; Foust’s marginal tax rate is 40%, and its targetcapital structure is 40% debt and 60% equity.a. Calculate Foust’s after-tax cost of debt and common equity. Calculate the cost of equityas rs = D1/P0 + g.b. Find Foust’s WACC.Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).Editorial review has deemed that any suppressed content does not…
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 $77.00 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 8%; Foust's marginal tax rate is 25%; and its target capital structure is 30% debt and 70% equity. a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. 6.00 Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D1/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. -5.44 % b. Find Foust's WACC. Do not…
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.7 million shares outstanding, is now (1/1/22) selling for $56.00 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 10%; Foust's marginal tax rate is 25%; and its target capital structure is 45% debt and 55% 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. Do not round intermediate calculations. Round your answer to two decimal places. % Find…
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.0 million shares outstanding, is now (1/1/22) selling for $63.00 per share. The expected dividend at the end of the current year (12/31/22) is 50% 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 8%; Foust's marginal tax rate is 25%; and its target capital structure is 55% debt and 45% equity. a. 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 r; = D1/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. % b. Find Foust's WACC. Do not round…
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.4 million shares outstanding, is now (1/1/22) selling for $55.00 per share. The expected dividend at the end of the current year (12/31/22) is 60% 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 % 2012 $3.90 2013 % 2014 EPS 2015 4.21 4.55 4.91 Year 5.31 2017 2018 2019 7.22 2016 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 45% debt and 55% equity. a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. EPS 2020 $5.73 6.19 6.68 Calculate Foust's cost of common equity. Calculate the cost of equity as r₂ = D1/Po+g. Do not round intermediate calculations. Round your answer to two decimal places. b. Find Foust's WACC. Do not round…
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 7.6 million shares outstanding, is now (1/1/19) selling for $74 per share. The expected dividend at the end of the current year (12/31/19) is 65% of the 2018 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 2009 $3.90 2014 $5.73 2010 4.21 2015 6.19 2011 4.55 2016 6.68 2012 4.91 2017 7.22 2013 5.31 2018 7.80 The current interest rate on new debt is 9%; Foust's marginal tax rate is 40%; and its target capital structure is 35% debt and 65% 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. Do not round intermediate calculations. Round your answer to two decimal places. % C) Find…
The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 6.3 million shares outstanding, is now (1/1/22) selling for $77.00 per share. The expected dividend at the end of the current year (12/31/22) is 40% 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.) 6.75 % 27.31 Year 2012 % 2013 % 2014 2015 EPS $3.90 4.21 4.55 4.91 .60 b. Find Foust's WACC. Do not round intermediate calculations. Round your answer to two decimal places. Year 2017 $5.73 2018 2016 5.31 The current interest rate on new debt is 9%; Foust's marginal tax rate is 25%; and its target capital structure is 40% debt and 60% equity. a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. 2019 2020 EPS 2021 6.19 Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D₁/Po + g. Do not round…
Excelon Company’s earnings per share (EPS) for the last 10 years averages to around $ 6.8.The common stock, 7.8 million shares outstanding, is now (1/1/21) selling for $68.00 pershare. The expected dividend at the end of the current year (12/31/21) is 55% of the 2019 EPSwhich is $7.8. Investors expect past trends to continue, g may be based on the historicalearnings growth rate which is 7.5 percent per year on average.Excelon has 25-year non-callable bonds outstanding with a face value of $1,000, an 12%annual coupon, and a market price of $1,300. Excelon can issue perpetual preferred stock ata price of $45.50 a share. The stock would pay a constant annual dividend of $3.60 a share.Its capital structure, considered to be optimal, is as follows:Debt $105,000,000Preferred Stock $10,000,000Common equity $145,000,000Total liabilities and equity $260,000,000i. If the firm’s beta is 1.25, the risk-free rate is 6.5 %, and the average return on the market is13.5%, what will be the firm’s cost…
(a) Excelon Company’s earnings per share (EPS) for the last 10 years averages to around $ 6.8.The common stock, 7.8 million shares outstanding, is now (1/1/21) selling for $68.00 pershare. The expected dividend at the end of the current year (12/31/21) is 55% of the 2019 EPSwhich is $7.8. Investors expect past trends to continue, g may be based on the historicalearnings growth rate which is 7.5 percent per year on average.Excelon has 25-year non-callable bonds outstanding with a face value of $1,000, an 12%annual coupon, and a market price of $1,300. Excelon can issue perpetual preferred stock ata price of $45.50 a share. The stock would pay a constant annual dividend of $3.60 a share.Its capital structure, considered to be optimal, is as follows:Debt $105,000,000Preferred Stock $10,000,000Common equity $145,000,000Total liabilities and equity $260,000,000i. If the company was to issue new debt, what would be a reasonable estimate of the cost onthat debt?ii. If the company’s tax rate…
(a) Excelon Company’s earnings per share (EPS) for the last 10 years averages to around $ 6.8.The common stock, 7.8 million shares outstanding, is now (1/1/21) selling for $68.00 pershare. The expected dividend at the end of the current year (12/31/21) is 55% of the 2019 EPSwhich is $7.8. Investors expect past trends to continue, g may be based on the historicalearnings growth rate which is 7.5 percent per year on average.Excelon has 25-year non-callable bonds outstanding with a face value of $1,000, an 12%annual coupon, and a market price of $1,300. Excelon can issue perpetual preferred stock ata price of $45.50 a share. The stock would pay a constant annual dividend of $3.60 a share.Its capital structure, considered to be optimal, is as follows:Debt $105,000,000Preferred Stock $10,000,000Common equity $145,000,000Total liabilities and equity $260,000,000 vii. What is the company’s cost of preferred stock, rp?viii. Find Excelon’s WACC. (use cost of common equity calculated in part vi)
Last year, Big W Company reported earnings per share of $2.50 when its stock was selling for$50.00. If its earnings this year increase by 10 percent and the P/E ratio remains constant, whatwill be the price of its stock? Explain.
Fester Industries’ common stock is currently selling for $30.00 per share. Next year’s dividend (D1) is expected to be $1.26. If the required return on Fester’s common stock is 9.20%, what was the most recent dividend that Fester paid (D0)?

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