Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of r
Posted: Tue Nov 16, 2021 9:07 am
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 30% debt and 70% common equity.
Its last dividend (D0) was $1.55, its expected constant
growth rate is 5%, and its common stock sells for $24. EEC's tax
rate is 25%. Two projects are available: Project A has a rate of
return of 14%, and Project B's return is 10%. These two projects
are equally risky and about as risky as the firm's existing
assets.
What is its cost of common equity? Do not round intermediate
calculations. Round your answer to two decimal places.
What is the WACC? Do not round intermediate calculations. Round
your answer to two decimal places.
Which projects should Empire accept?
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 30% debt and 70% common equity.
Its last dividend (D0) was $1.55, its expected constant
growth rate is 5%, and its common stock sells for $24. EEC's tax
rate is 25%. Two projects are available: Project A has a rate of
return of 14%, and Project B's return is 10%. These two projects
are equally risky and about as risky as the firm's existing
assets.
What is its cost of common equity? Do not round intermediate
calculations. Round your answer to two decimal places.
What is the WACC? Do not round intermediate calculations. Round
your answer to two decimal places.
Which projects should Empire accept?