Problem:
Johnson Tire Distributors has an unlevered cost of capital of 13 percent, a tax rate of 34 percent, and expected earnings before interest and taxes of $1,800. The company has $3,200 in bonds outstanding that have an 8 percent coupon and pay interest annually. The bonds are selling at par value.
Requirement:
Question: What is the cost of equity?
Note: Show all workings.