Company uses only debt and common equity

Assignment Help Financial Management

Reference no: EM131524054

WACC

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 25% debt and 75% common equity. Its last dividend (D0) was $2.20, its expected constant growth rate is 3%, and its common stock sells for $21. 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 11%. 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: EM131524054

Questions Cloud

Prepare a memorandum to the client : Prepare a memorandum to the client, recommending a type of business entity, including an appendix of supporting IRS tax schedules and forms.

What is the cost of the preferred stock-including flotation : What is the cost of the preferred stock, including flotation?

What would be cost of new equity : New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of new equity?

Identify how various health care stakeholders define quality : Analyze the purpose of quality management in the health care industry. Identify how various health care stakeholders define quality.

Company uses only debt and common equity : Empire Electric Company (EEC) uses only debt and common equity. What is its cost of common equity? Which projects should Empire accept?

Do the data represent good news or bad news : Peter Finch looked at the numbers for the renewals of subscriptions to Decision Analysis Monthly magazine.

Create a four-part training manual : Create a four-part training manual that introduces the purpose of a QI plan and its components for new staff members.

What is wacc for last dollar raised to complete expansion : What is the WACC for the last dollar raised to complete the expansion?

Explain data needed to monitor improvements : Explain data needed to monitor improvements.Explain at least three data collection tools you can use to collect performance information.

User Account

All Pages