pire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. Its last dividend (D0) was $3.15, its expected constant growth rate is 6%, and its common stock sells for $23. EEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. % What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations. % Which projects should Empire accept?
pire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. Its last dividend (D0) was $3.15, its expected constant growth rate is 6%, and its common stock sells for $23. EEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. % What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations. % Which projects should Empire accept?
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 7P
Related questions
Question
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 10% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. Its last dividend (D0) was $3.15, its expected constant growth rate is 6%, and its common stock sells for $23. EEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets.
- What is its
cost of common equity ? Round your answer to two decimal places. Do not round your intermediate calculations.
%
- What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations.
%
- Which projects should Empire accept?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT