$*$WHAT IS THE COST OF EQUITY IF CORPORATE TAX RATE IS $20\%?*$

Easy Car Corp. is a grocery store located in the Southwest. It paid an annual dividend

of $$4\mathrm{.}00$ last year to its shareholders and plans to increase the dividend annually at

the rate of $4\mathrm{.}0\%.$ It currently has $2,000,000$ common shares outstanding. The shares

currently sell for $$20$ each. The common stock beta is $1\mathrm{.}0.$ Easy Car Corp. also has

$50,000$ semiannual bonds outstanding with a coupon rate of $10\%,$ a maturity of $20$

years, and a par value of $$1,000.$ The bonds currently have a yield to maturity $($YTM$)$

of $6\%.$ The risk$-$free rate is $3\%$ and the market risk premium is $6\%.$

What is the best estimate of the cost of equity for Easy Car Corp. if the corporate tax

rate is $20\%?$

When answering this problem enter your answer using percentage notation but do

not use the $\%$ symbol and use two decimals $($rounding$).$ For example, if your answer is

$0\mathrm{.}10469$ then enter $10\mathrm{.}47$ ; if your answer is $10\%$ then enter $10\mathrm{.}00$

Your Answer: