Only debt and common equity

Assignment Help Financial Management

Reference no: EM132058773

Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 9% as long as it finances at its target capital structure, which calls for 30% debt and 70% common equity. Its last dividend (D0) was $1.50, its expected constant growth rate is 5%, and its common stock sells for $25. 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.

Reference no: EM132058773

Questions Cloud

Anticipated net outgoing cash flow per day is estimated : Assume BOH’s anticipated net outgoing cash flow per day is estimated as $3 million. What is BOH’s liquidity coverage ratio?

Company has arranged revolving credit agreement : Your company has arranged a revolving credit agreement for up to $78 million at an interest rate of 1.47 percent per quarter.

The firm level of investment in working capital : Which of the following major factors affect the firm's level of investment in working capital?

What is the company cost of common equity : What is the company's cost of common equity if all of its equity comes from retained earnings?

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

The disadvantages of the simple payback approach : The disadvantages of the simple payback approach include:

Cost of common equity and wacc : Palencia Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock.

Determine the project annual net cash flows : Annual depreciation from the project is $30,000 and the firm's tax rate is 40 percent. Determine the project's annual net cash flows. $48,000

Bond value does the repayment of the principle represent : what percent of the total bond value does the repayment of the principle represent.

User Account

All Pages