Equally risky and about as risky as firms existing assets

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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 $1.95, its expected constant growth rate is 4%, and its common stock sells for $21. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 15%, while Project B's return is 8%. These two projects are equally risky and about as risky as the firm's existing assets

Reference no: EM131070731

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Equally risky and about as risky as firms existing assets : 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. These two project..

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