About as risky as firm existing assets

Assignment Help Financial Management
Reference no: EM131923975

WACC Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 30% debt and 70% common equity. Its last dividend (D0) was $2.45, its expected constant growth rate is 3%, and its common stock sells for $22. EEC's tax rate is 40%.

Two projects are available: Project A has a rate of return of 13%, and Project B's return is 8%. 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?

Reference no: EM131923975

Questions Cloud

What is standard deviation of returns for lately lighthouse : What is the expected return for Lately Lighthouse, Inc.? What is the standard deviation of returns for Lately Lighthouse, Inc.?
Find the value of the perpetuity : Amy inherited a perpetuity with annual payments starting in six months. Find the value of the perpetuity on December 1st 2009,
Calculate modified internal rate of return for project : Calculate the modified Internal rate of return for a project with the following cash flows.
Annuity number of periods : How long will it take to pay off a loan of $45,000 at an annual rate of 9 percent compounded monthly if you make monthly payments of $550?
About as risky as firm existing assets : These two projects are equally risky and about as risky as the firm's existing assets. What is its cost of common equity?
Calculation of investment and calculation of cash flows : The number of Services will be estimated using moderate scenario. Calculation of Investment, Calculation of Cash Flows, Calculation of IRR
Binomial option pricing model to find price of put option : Please use binomial option pricing model to find the price of the put option.
Retirement plans : Chad tells you he wants to revise his retirement plans. how much will he have if his annual contributions grow at a rate of 2.5% per year, compounded annually?
New smelting furnace for specialty materials division : ALCOA is considering purchasing a new smelting furnace for their specialty materials division.

Reviews

Write a Review

Financial Management Questions & Answers

  What will the new average inventory be

What is the economic order quantity? What is the total carrying cost? What will the new average inventory be?

  According to liquidity preference hypothesis yield curves

According to the liquidity preference hypothesis yield curves generally slope upward because

  Statements best describes a firm''s financial risk

Which of the following statements best describes a firm's financial risk?

  Treasury bond-premium or discount bond

The quote for a US Treasury bond maturing on Aug 15, 2026 (from the Wall Street Journal) is shown below. Is this a premium or a discount bond?

  Assume that they can earn annual rate of return

Assume that they can earn an annual rate of return of 7?% on their investment.

  Calculate merck break-even point in units

Merck Corporation manufactures blood glucose meters. Calculate Merck's break-even point in units.

  The assets commonly held by households in united states

Use the Web or library research to obtain information about the assets commonly held by households in the United States.

  Income tax advantages of making charitable gifts

Describe the income tax advantages of making charitable gifts during a person's lifetime, including items that would qualify for income tax deduction. Give some examples.

  Repaid in equal monthly installments

You are planning to borrow $100,000 for a major purchase, to be repaid in equal monthly installments over the next ten years. If interest rates are 13% per annum (compounded monthly), how much should each instalment be, if paid at the end of the mont..

  Determine the total variance

Determine the total variance between the planned and actual budgets for Surgical Volume.State the variance for all values as favorable or unfavorable.

  What is the expected return on the portfolio

If the expected returns on these stocks are -0.07 and 0.17, respectively, what is the expected return on the portfolio?

  Executive director of social services nonprofit

You are the executive director of a social services nonprofit and have just been notified that you are losing your funding for the Seniors Program.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd