David Ortiz Motors: Calculate the cost of equity capital in a given situation.

David Ortiz Motors has a target capital structure of a 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 9.96%. What is the company's cost of equity capital?

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...h a 40% rate:

9%*(1-40%) = .09*.6 = 5.4%

The WACC is given by summing the costs of ...