Two weeks ago in an interview question "You have a company with a P/E ratio of 10x and cost of debt of 5%, what is the cost of equity? And would this company finance with debt or equity?" How would you get the cost of equity using the P/E ratio?
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inverse of pe ratio is cost of equity / equity yield so in this case its 10%
I guess since equity is more expensive, you'd prefer to finance with debt?
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