Empire Electric Company Eec Uses Only Debt And Common Equity It Can Borrow Unlimited Amounts At An Interest Rate Of R 1 (22.71 KiB) Viewed 10 times
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of ra = 10% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend (Do) was $2.85, its expected constant growth rate is 6%, and its common stock sells for $27. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets. a. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places. -Select- % c. Which projects should Empire accept?
Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fund its $12 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 14%, a before-tax cost of debt of 8%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D₁) is $2, and the current stock price is $31. a. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % b. If the firm's net income is expected to be $2.0 billion, what portion of its net income is the firm expected to pay out as dividends? Do not round intermediate calculations. Round your answer to two decimal places. (Hint: Refer to Equation below.) Growth rate= (1 - Payout ratio)ROE %
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