QUESTION 16

1. The table below provides the earnings per share value for Taylor, Inc. over the past seven years. With 12 million shares outstanding, the firms common stock is now (1/1/20) selling for $34.29 per share, and the expected dividend at the end of the current year (2020) is 40 percent of the 2019 EPS. Because investors expect past trends to continue, g may be based on the earnings growth rate. (Note that 6 years of compounded growth are reflected in the data.)

   YEAR	EPS		2016	1.35
   2013	0.90		2017	1.43
   2014	1.04		2018	1.58
   2015	1.21		2019	1.85

   The current interest rate on new debt is 6.5 percent. The firms marginal tax rate is 35 percent. The firms capital structure, considered to be optimal, is 28 percent debt and 72 percent common equity. Calculate the weighted average cost of capital (assume that no new common stock has to be sold).

   	A.	None of the other choices is within 0.2 percent.
   	B.	10.27 percent
   	C.	12.56 percent
   	D.	13.04 percent
   	E.	11.93 percent