1/ 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 15.00%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

2/ Cost of Equity with and without Flotation

Jarett & Sons's common stock currently trades at $28.00 a share. It is expected to pay an annual dividend of $2.50 a share at the end of the year (D1= $2.50), and the constant growth rate is 4% a year.

1. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. Do not round your intermediate calculations.

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2. If the company issued new stock, it would incur a 13% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places. Do not round your intermediate calculations.

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3/ Cost of Common Equity and WACC

Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 12% and its marginal tax rate is 40%. The current stock price is P0= $35.00. The last dividend was D0= $2.50, and it is expected to grow at a 6% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations.

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