[princessfinance]

10-20 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 (1/1/09) selling for $65.00 per share. The expected dividend at the end of the current year (12/21/09) is 55% of the 2008 EPS. Because investors expect past trends to continue, g may be based in the historical earnings growth rate (Note that 9 years of growth are reflected in the 10 years of data.)
Year EPS Year EPS
1999 $ 3.90 2004 $ 5.73
2000 4.21 2005 6.19
2001 4.55 2006 6.68
2002 4.91 2007 7.22
2003 5.31 2008 7.80

The current interest rate on new debt is 9%, Foust's marginal tax rate is 40%; and its capital structure, considered to be optimal, is as follows:
Debt 104000000
Common equity 156000000
Total liabilities and equity 260000000

a. Calculate Foust's after-tax cost of debt and common equity. Calculate the cost of equity as rs=D1/P0+ g.

b. Find Foust's WACC.