Pearson Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 12%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 13.70%. What is Pearson's cost of common equity

Cost of common equity is 16.49%

Explanation:

The WACC of weighted average cost of capital is the cost of a firm's capital structure. The capital structure of the firm can comprise of the following components namely debt, preferred stock and common stock.

For a firm which has only debt and equity, the WACC is calculated as follows,

WACC = wD * rD * (1 - tax rate)   +   wE * rE

Where,

Plugging in the values of the available components, we can calculate the cost of common equity to be,

0.1370 =  0.3 * 0.12 * (1 - 0.4)  +  0.7 * rE

0.1370 = 0.0216 + 0.7 * rE

0.1370 - 0.0216  = 0.7 * rE

0.1154 / 0.7  =  rE

rE = 0.164857  or  16.4857%    rounded off to 16.49%

d, rjskdndjsndbdnsjdbxbc

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

your welcome leave a rate and a < 3