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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?
Wiki User
∙ 12y ago
- i think your question is not complete at all...in my text book of finance
it say the tax 40%, i got same question about Percy motors
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.Kc0.0996= 0.4 x 0.054+0 x 0 +0.6 x Kc0.0996 = 0.0216 + 0.6Kc0.0996-0.0216 = 0.6Kc0.13 = KcKc= 13%
so....the Percy motors of common equity is 13%
Wiki User
∙ 12y ago
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