Answer:
The Pearson's cost of common equity is 16.00%
Step-by-step explanation:
For computing the cost of common equity, following formula should be used which is shown below:
WACC = (Equity portion × total cost of equity) + (debt portion × total cost of debt) × (1 - tax rate)
11.50% = (0.55 × total cost of equity) + (0.45 × 0.10) × (1 - 0.40)
11.50% = (0.55 × total cost of equity) + 0.045 × 0.60
11.50% = (0.55 × total cost of equity) + 0.027
11.50% - 2.70% = (0.55 × total cost of equity)
8.80% ÷ 0.55 = total cost of equity
So, total cost of equity = 16.00%
Hence, the Pearson's cost of common equity is 16.00%