Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of r

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answerhappygod
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Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of r

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Empire Electric Company (EEC) uses only debt and common equity.It can borrow unlimited amounts at an interest rateof rd = 9%, as long as it finances at its targetcapital structure, which calls for 35% debt and 65%common equity. Its last dividend ( D0 ) was$2.20, its expected constant growth rate is 6%, and itscommon stock sells for $26. EEC’s tax rate is 40%. Twoprojects are available: Project A has a rate of return of 12% andProject B’s return is 11%. These two projects are equally risky andabout as risky as the firm’s existing assets. What is its cost of common equity? What is the WACC? Which projects should Empire accept?
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