1. Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 10%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 14.00%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

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2. Midwest Water Works estimates that its WACC is 10.41%. The company is considering the following capital budgeting projects.

Assume that each of these projects is just as risky as the firm's existing assets and that the firm may accept all the projects or only some of them. Which set of projects should be accepted?

Project	Size	Rate of Return
A	$1 million	12.0%	Accept or Don't accept
B	2 million	11.5	Accept or Don't accept
C	2 million	11.2	Accept or Don't accept
D	2 million	11.0	Accept or Don't accept
E	1 million	10.7	Accept or Don't accept
F	1 million	10.3	Accept or Don't accept
G	1 million	10.2	Accept or Don't accept

3.The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan's common stock currently sells for $23.75 per share; its last dividend was $2.00; and it will pay a $2.12 dividend at the end of the current year.

1. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. %
3. If the firm's beta is 1.20, the risk-free rate is 3%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. %
5. If the firm's bonds earn a return of 10%, based on the bond-yield-plus-risk-premium approach, what will be r_s? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. %
7. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. %