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 $65.00 per share. The expected dividend at the end of the current year (12/31/22) is 55% 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.)

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 and common equity. Calculate the cost of equity as rs = D₁/P₀ + g.

b. Find Foust’s WACC.

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Year EPS 2012 $3.90 2013 4.21 2014 4.55 2015 4.91 2016 5.31 Year 2017 2018 2019 2020 2021 EPS $5.73 6.19 6.68 7.22 7.80