What is its cost of common equity

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Reference no: EM132050013

WACC 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 35% debt and 65% common equity.

Its last dividend (D0) was $1.70, its expected constant growth rate is 5%, and its common stock sells for $23.

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? Round your answer to two decimal places.

b What is the WACC? Round your answer to two decimal places.

c Which projects should Midwest accept?

Reference no: EM132050013

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