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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 = 9% as long as it finances at its target capital structure, which calls for 40% debt and 60% common equity. Its last dividend (D0) was $3.25, its expected constant growth rate is 3%, and its common stock sells for $26. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 12%, while Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets.
a. What is its cost of common equity?
b. What is the WACC?
If you invest $700 today in an account that pays 6.5 percent compounded semi-annually, how much will be in your account after eight years? What is the effect of compound interest? Please show your work.
Solarcell Corporation has $20,000 which it plans to invest in marketable securities. It is choosing between AT&T bonds which yield 11%, State of Florida municipal bonds which yield 8%, and AT&T preferred stock with a dividend yield of 9%.
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Where would one look to measure free cash flows (FCF) on a firm's statement of cash flows?
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Describe the basic features of the following:a. Open credit lines b. Asset based loans c. Term commercial loans d. Short term real estate loans
Comparing competing projects' net present value and internal rate of return ________. A. always results in the same ranking of projects B. always results in the same accept-reject decision C. may give different accept-reject decisions D. is only nece..
Four firms control the market for a particular good, resulting in an HHI of 6,650. Total industry sales are $1,750, and it is known that one firm has sales of $1,400 and another sales of $175. If each of the remaining two firms has the same sales, th..
Your firm has an average collection period of 36 days. Current practice is to factor all receivables immediately at a discount of 1.7 percent. What is the effective cost of borrowing in this case?
Which of the following would be considered a cash inflow in the financing activities section of the statement of cash flows?
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