The following tabulation gives earnings per share figures for the Foust Company during the
Preceding 10 years. The firm’s common stock, 7.8 million shares outstanding, is now (1/1/03)
Selling for $65 per share, and the expected dividend at the end of the current year (2003) is
55 percent of the 2002 EPS. Because investors expect past trends to continue, g may be based
On the earnings growth rate. (Note that 9 years of growth are reflected in the data.)


YEAR EPS YEAR EPS
1993 $3.90 1998 $5.73
1994 4.21 1999 6.19
1995 4.55 2000 6.68
1996 4.91 2001 7.22
1997 5.31 2002 7.80

The current interest rate on new debt is 9 percent. The firm’s marginal tax rate is 40 percent.
Its capital structure, considered to be optimal, is as follows:
Debt $104,000,000
Common equity 156,000,000
Total liabilities and equity $260,000,000
a. Calculate Foust’s after-tax cost of new debt and common equity. Calculate the cost of equity
As ks  D1/P0  g.
b. Find Foust’s weighted average cost of capital.

This is your homework -- we are not here to do it for you, but to help you with it. You need to post attempts you've made to do your work or ask questions about specifically what you don't understand.

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To morgaine300:

I have no idea how to do this class, I am so confused, but I have no choice to do it. You have no right to speak to me that way. You are a complete idiot. If I knew how to do it I would not have asked in the first place. Oh and by the way I did go to the BIG RED LETTERS and it did nothing, so there. Do not reply to any more of my posts...

I'm really tired of taking the hits because I merely repeat what is already posted here. If I seem annoyed, it's because no one reads it and I'm a little tired of it. And now it's my fault that other people don't read!

I've been doing this for a living for 13 years. I am perfectly well aware that some people don't know where to start and are thorough confused. No, I'm not an idiot.

But what you probably don't get is that a lot of people do know where to start and already have answers or partial answers, and don't bother posting them. And making a comment about it a lot of times prompts them into posting it. As I said to another person, is this your reaction to your instructors at school? I doubt it.