Uses debt and common equity

Assignment Help Financial Management
Reference no: EM132051043

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 40% debt and 60% common equity. Its last dividend (D0) was $3.10, its expected constant growth rate is 4%, and its common stock sells for $22. 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 8%. 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. Do not round your intermediate calculations.

B) What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations.

C) Which projects should Empire accept? Project A or project B?

Reference no: EM132051043

Questions Cloud

When the goods are in the possession of the seller or lessor : If the buyer or lessee breaches the contract before the goods have been delivered, what remedies the seller or lessor can pursue?
Theory of respondeat superior and its impact on liability : Explain the theory of respondeat superior and its impact on liability to third parties. When does it apply and when doesn't it apply?
Discuss given essay in detail : Directions: Read an excerpt from your text called: "Essay: Scanning Genomes for Disease Markers". For this assignment, please discuss the essay from your text.
Different types of agency relations : What duties do principal have the agent? What duties to agents have principals? What remedies do each party has against the other if that duty is breached?
Uses debt and common equity : Empire Electric Company (EEC) uses only debt and common equity. What is its cost of common equity? What is the WACC?
Explain the role of international accounting standards board : Explain the role of International Accounting Standards Board (IASB) in harmonization. How is the board created
Union was involved in a legal strike : A union was involved in a legal strike, and picketed the employer's plant. Archie, a union member
Explain the influence of environmental issues of diversity : Explain the influence of environmental issues of diversity on accounting practices. Explain differences between accounting practices around the world
What is the pretax and after tax cost of preferred stock : The preferred stock is currently selling in the market for $25.50 per share. What is the pretax and after tax cost of the preferred stock?

Reviews

Write a Review

Financial Management Questions & Answers

  What is the duration of a four-year treasury bond

What is the duration of a four-year Treasury bond with a 4.5 percent semiannual coupon selling at par?

  Call option-the stock should be worth what today

A call option on Juniper Corp. stock with exercise price of $30 and expiration date one year from now is worth $8.50 today.The stock should be worth what today.

  Retirement dream with one lump sum depsosit

Assume you can earm an average annual rate of return of 8.8 percent. your hope is that you will win the lottery today and be able to fund your retirement dream with one lump sum depsosit today. how much would you have to win, after taxes, to make ..

  Discuss the determinants of foreign exchange rates

Discuss the determinants of foreign exchange rates.

  What are globallized portfolio risks

What are Globallized Portfolio risks?

  Calculate the effective annual interest rate on trade credit

Legacy Enterprises received invoice from its supplier. The terms of credit were stated as 3/15 n45. Calculate the effective annual interest rate on trade credit

  What is the expected dollar value of your portfolio

At the end of one year, what is the expected dollar value of your portfolio?

  Calculate the value of the bond

What is the relationship between the value of the bond today and the Yield to Maturity - what is the value of the growth (subtract a from b)?

  What would be its new market value

Suppose interest rates rise and pull the preferred stock's yield up to 11%. What would be its new market value?

  What is bella annual rate of return

Bella Sandino purchased some corporate stock for $17,500. What is Bella’s annual rate of return (IRR)?

  Addresses disclosure information about shareholders equity

Identify the authoritative literature that addresses disclosure information about shareholders’ equity

  Decreasing the interest rate

All else equal, the future value of a lump-sum amount invested today will increase if this happens Decreasing the interest rate, Decreasing the amount of the lump sum investment

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd