Pearson Motors has a target capital structure of 40% debt and 60% common equity, with no...

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Pearson Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturi

Answer 1

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Answer #1

After-tax cost of debt=yield to maturity*(1-tax rate)

=8*(1-0.25)=6%

WACC=Respective costs*Respective weight

11.4=(6*0.4)+(0.6*Cost of common equity)

Cost of common equity=(11.4-2.4)/0.6

=15%

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Answer 2

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