What is cost of common equity for empire electric company

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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 $3.35, its expected constant growth rate is 4%, and its common stock sells for $28. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%, and Project B's return is 11%. These two projects are equally risky and about as risky as the firm's existing assets.

Problem 1: What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

Problem 2: What is the WACC?

Reference no: EM132843864

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