Johnson Tire Distributors has an unlevered cost of capital of 12 percent, a tax rate of 33 percent, and expected earnings before interest and taxes of $1,400. The company has $2,500 in bonds outstanding that have a 6 percent coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?
13.64 percent
10.91 percent
12.27 percent
9.55 percent
8.18 percent