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David Ortiz Motors:Cost of Equity

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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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In a clear and concise response, the solution shows the formulas and calculates the answer to the question about the cost of equity capital.

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First calculate the true cost of the debt financing by applying the tax shield for a firm ...

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