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eBook 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 11%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 11.80%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. M Jarett & Sons' common stock currently trades at $20.00 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (D = $1.25), and the constant growth rate is 4% a year. a. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. b. If the company issued new stock, it would incur a 12% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places. Problem Walk-Through 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 $28.25 per share; its last dividend was $2.50; and it will pay a $2.65 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. eBook % b. If the firm's beta is 2.0, the risk-free rate is 8%, and the average return on the market is 12%, 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 10%, 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. D CBOOK The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 17%, its before-tax cost of debt is 10%, 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 $1,193. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Cash Accounts receivable Inventories Plant and equipment, net Total assets $ 120 240 360 2,160 $2,880 Liabilities And Equity Accounts payable and accruals Short-term debt Long-term debt Common equity $10 63 1,130 1,677 $2,880 Total liabilities and equity Calculate Paulson's WACC using market value weights. Do not round intermediate calculations. Round your answer to two decimal places