Bonds are selling at par value-what is the cost of equity

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Reference no: EM131353250

Johnson Tire Distributors has an unlevered cost of capital of 11 percent, a tax rate of 33 percent, and expected earnings before interest and taxes of $1,600. The company has $2,700 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?

a. 10.72 percent

b. 11.91 percent

c. 9.53 percent

d. 8.34 percent

e. 7.15 percent

Reference no: EM131353250

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