Problem 103 Cost of Common Equity CY Motors has a target cap

Problem 10-3 Cost of Common Equity CY Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company\'s outstanding bonds is 8%, and its tax rate is 40%. Percy\'s CFO estimates t the company\'s WACC is 13.90%, what is Percy\'s cost of common equity? Round your answer to two decimal places.

Solution

13.90 = 0.70 * cost of commo equity + 0.30 * 8%*0.6

cost of common equity = 17.80%