COST OF COMMON EQUITY Pearson Motors has a target capital st

COST OF COMMON EQUITY Pearson Motors has a target capital structure of 45% debt and 55% common equity, with no preferred stock. The yield to maturity on the company\'s outstanding bonds is 12%, and its tax rate is 40%. Pearson\'s CFO estimates that the company\'s WACC is 14.30%, what is Pearson\'s cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

Solution

14.30% = 0.55* cost of equity of Person Motors + 0.45*12%*0.6

cost of equity of Pearson Motors = 20.11%