Q12

Pearson Motors has a target capital structure of 50% debt and 50% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9%, , and tax rate 40%. the Pearson CFO estimates that the company's WACC is 10.50 % What cost of common equity?

a. 15.6% b. 13.5% c.18.3% d. 14.0%