A company has an unlevered cost of capital of 10%, a tax rate of 21%, and expected earnings before interest and taxes of $4,000. The company has $5,000 in bonds outstanding that have an 7% coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity? What is WACC?

Show me the work

Steps: Compute NI --> VU--> VL--> Separate VL into S and B, --> compute Rs (using MM Prop II w Taxes) --> Compute Wd, Ws --> Compute WACC