Question: Johnson Tire Distributors has debt with both a face and a market value of $63,000,000. This debt has a coupon rate of 8 percent and

Johnson Tire Distributors has debt with both a face and a market value of $63,000,000. This debt has a coupon rate of 8 percent and pays interest annually. The expected earnings before interest and taxes is a constant $75,000,000 in perpetuity. The company's tax rate is 30 percent, and the unlevered cost of capital is 25 percent. What is the firm's cost of equity?

Write your answer as a percent rounded to two digits, but don't include the % sign (i.e. enter 12.63, not 0.1263).

HINT: You need to use both M&M propositions.

Numeric Response:

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