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

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Answer 1

Answer #1

WACC = weight of debt × cost of debt × ( 1 - tax rate ) + weight of equity × cost of equity

8.96% = 40% × 9% × ( 1 - 40%) + 60% × cost of equity

8.96% = 3.6% × 0.60 + 0.60 × cost of equity

8.96% = 2.16% + 0.60 Cost of equity

(8.96% - 2.16%) / 0.60 = cost of equity

11.33% = cost of equity

The correct option is B

Answer 2

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