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Johnson Tire Distributors has debt with both a face and a market value of $162,500,000. This debt has a coupon rate of 8 percent and
Johnson Tire Distributors has debt with both a face and a market value of $162,500,000. This debt has a coupon rate of 8 percent and pays interest annually. The expected earnings before interest and taxes is a constant $100,000,000 in perpetuity. The company's tax rate is 35 percent, and the unlevered cost of capital is 20 percent. What is the firm's cost of equity?
Write your answer as a percent rounded to two digits, but don't include the % sign (i.e. enter 12.63, not 0.1263).
HINT: You need to use both M&M propositions.
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