Ask Question
BusinessBusiness
3 January, 22:24

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 8%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 12.80%. What is Pearson's cost of common equity

+5
Answers (1)
  1. 3 January, 22:42
    0
    The company's cost of common equity is 19.3%

    Explanation:

    To calculate the company's cost of common equity we have to use the formulate to calculate the WACC.

    WACC = WEKE + (WDKD x (1 - T))

    0.1280 = (0.55 x KE) + ((0.45 x 0.08) x (1 - 0.40))

    0.1280 = 0.55KE + (0.036 x 0.60)

    0.55KE = 0.1280 - 0.0216

    0.55KE = 0.1064

    KE = 0.1064 / 0.55

    KE = 0.193 or 19.3%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Pearson Motors has a target capital structure of 45% debt and 55% common equity, with no preferred stock. The yield to maturity on the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
Analyze how taxes or emissions standards could reduce the economic inefficiency that arises in a competitive market with a negative externality.
Answers (1)
In your opinion, what aspects of the economy should be subject to some government regulation, involvement, or oversight?
Answers (1)
New Morning Bakery is in the process of closing its operations. It sold its two-year-old bakery ovens to Great Harvest Bakery for $700,000.
Answers (1)
Romeo Corporation reports the following for the year: Finished goods inventory, January 1 $ 3,200 Finished goods inventory, December 31 4,000 Total cost of goods sold 14,200 The cost of goods manufactured for the year is: A. $21,400 B. $11,000 C.
Answers (1)
a. Inventory, Beginning 300 $ 12 For the year: b. Purchase, April 11 900 10 c. Purchase, June 1 800 13 d. Sale, May 1 (sold for $40 per unit) 300 e. Sale, July 3 (sold for $40 per unit) 600 f.
Answers (1)
New Questions in Business
George and Weezy received $30,200 of Social Security benefits this year ($12,000 for George; $18,200 for Weezy). They also received $5,000 of interest from jointly owned City of Ranburne Bonds and dividend income.
Answers (1)
Which of the following is true regarding the high-tech industry today? a. It generally depends on a pool of low-skilled labor. b. It has led to the increased economic development of previously rural areas. c.
Answers (1)
Presented below are three receivables transactions. Indicate whether these receivables are reported as accounts receivable, notes receivable, or other receivables on a balance sheet. -Sold merchandise on account for $64,000 to a customer.
Answers (1)
Barans Realty Co. pays weekly salaries of $18,000 on Monday for a six-day workweek ending the preceding Saturday. Journalize the necessary adjusting entry at the end of the accounting period, assuming that the period ends on Friday.
Answers (1)
Montana Company was authorized to issue 200,000 shares of common stock. The company had issued 50,000 shares of stock when it purchased 10,000 shares of treasury stock.
Answers (1)
Home » Business » 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 8%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 12.
Sign Up Forgot Password?