Debt and common equity, Midwest Electric Company (MEC) uses

Debt and common equity

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Reference no: EM131084227

Midwest Electric Company (MEC) 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 30% debt and 70% common equity. Its last dividend (D0) was $3.05, its expected constant growth rate is 3%, and its common stock sells for $24. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, while Project B's return is 11%. These two projects are equally risky and about as risky as the firm's existing assets.

a. What is its cost of common equity? Round your answer to two decimal places.

____%

b. What is the WACC? Round your answer to two decimal places.

____%

Reference no: EM131084227

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