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*WHAT IS THE COST OF EQUITY IF CORPORATE TAX RATE IS 20%?* Easy Car...

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Accounting

*WHAT IS THE COST OF EQUITY IF CORPORATE TAX RATE IS 20%?*
Easy Car Corp. is a grocery store located in the Southwest. It paid an annual dividend
of $4.00 last year to its shareholders and plans to increase the dividend annually at
the rate of 4.0%. It currently has 2,000,000 common shares outstanding. The shares
currently sell for $20 each. The common stock beta is 1.0. Easy Car Corp. also has
50,000 semiannual bonds outstanding with a coupon rate of 10%, a maturity of 20
years, and a par value of $1,000. The bonds currently have a yield to maturity (YTM)
of 6%. The risk-free rate is 3% and the market risk premium is 6%.
What is the best estimate of the cost of equity for Easy Car Corp. if the corporate tax
rate is 20%?
When answering this problem enter your answer using percentage notation but do
not use the % symbol and use two decimals (rounding). For example, if your answer is
0.10469 then enter 10.47 ; if your answer is 10% then enter 10.00
Your Answer:
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