About as risky as the firm existing assets

Assignment Help Financial Management

Reference no: EM132022681

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 25% debt and 75% common equity. Its last dividend (D0) was $1.80, its expected constant growth rate is 4%, and its common stock sells for $24. 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 10%. 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: EM132022681

Questions Cloud

Understand the concept of investment : With a decent amount of capital, I'm trying to better understand the concept of investment and would like to know your opinion on whether I should:

What is cost of the preferred stock including flotation : Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. What is the cost of the preferred stock, including flotation?

Accumulate the required amount to buy : How much money should you place in this savings account every month in order to accumulate the required amount to buy the house of your dreams?

What would be cost of new equity : New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of new equity?

About as risky as the 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?

How far away is horizon date : How far away is the horizon date? What is the firm's intrinsic value today, P0?

What is aftertax cost of debt : What is the aftertax cost of debt? What is the company’s WACC?

Nominal rate of return on perpetual preferred stock : What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 12% of par,

What is the depreciation expense in year three : What is the depreciation expense in Year 3 given the following MACRS depreciation allowances, starting with year one

User Account

All Pages