Pearson Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company’s outstanding bonds is 9%, and its tax rate is 40%....

Pearson Motors has a target capital structure of 30% debt and
70% common equity, with no preferred stock. The yield to maturity on the company’s outstanding
bonds is 9%, and its tax rate is 40%. Pearson’s CFO estimates that the company’s
WACC is 10.50%. What is Pearson’s cost of common equity?