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Johnson Tire Distributors has an unlevered cost of capital of 12 percent, a tax rate of 34 percent, and expected earnings before interest and taxes of $1,400. The company has $2,800 in bonds outstanding that have a 7 percent coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?

Multi-choice:

A)9.51 percent

B)10.86 percent

C)8.15 percent

D)12.22 percent

E)13.58 percent

Please show workings.

Basic Finance, Finance

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