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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 8%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 10.30%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % e future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 8% per year. Callahan's common stock currently sells for $21.00 pe hare; its last dividend was $1.50; and it will pay a $1.62 dividend at the end of the current year. a. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % b. If the firm's beta is 1.7 , the risk-free rate is 3%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. % c. If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs ? Use the judgmental risk premium of 4% in your calculations. Round your answer to two decimal places. % d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 8%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,149. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. % Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd=8%, and its common stock currently pays a $2.50 dividend per share ( D0 =$2.50 ). The stock's price is currently $26.75, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 25%, and its WACC is 12.60%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places. % Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd=11% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend (D0) was $2.85, its expected constant growth rate is 3%, and its common stock sells for $30. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 13%, and Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets. a. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places. % c. Which projects should Empire accept
