getitnow Posts: 1, Reputation: 1 New Member #1 Mar 30, 2009, 07:56 PM
Percy Motors has a target capital structure of 40 percent debt and 60 percent common
Percy Motors has a target capital structure of 40 percent debt and 60 percent common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9 percent, and its tax rate is 40 percent. Percy's CFO estimates that the company's WACC is 9.96 percent. What is Percy's cost of common equity?
 farazfw13 Posts: 1, Reputation: 1 New Member #2 Jun 5, 2010, 05:15 AM
Percy Motors has a target capital structure of 40 percent debt and 60 percent common equity with no preferred stock The yield to maturity on the company's outstanding bonds is 9 percent and its tax rate is 40%. Percy's CFO estimates that the company's wacc is 9.96% what is the percy cost of common equity?

-the answer- we know that : capital structure of 40 percent debt and 60 percent common equity with no preferred stock The yield to maturity on the company's outstanding bond is 9% the tax 40% and wacc is 9.96%

wd= 40% wc= 60% rd=9%

kd= rd(1-T) = 9 (1-0.4) = 5.4%

WACC = Wd.Kd+ Wp.Kp+ Wc.Kc 0.0996= 0.4 x 0.054+0 x 0 +0.6 x Kc 0.0996 = 0.0216 + 0.6Kc 0.0996-0.0216 = 0.6Kc 0.13 = Kc Kc= 13%

so... the percy motors of common equity is 13%
 morgaine300 Posts: 6,561, Reputation: 276 Uber Member #3 Jun 7, 2010, 06:46 AM

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