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What is its cost of common equity

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Question - 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 45% debt and 55% common equity. Its last dividend (D0) was $1.75, its expected constant grow rate is 3%, and its common stock sells for $29. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%, and Project return is 8%. These two projects are equally risky and about as risky as the firm's existing assets.

Required -

a. What is its cost of common equity?

b. What is the WACC?

c. Which projects should Empire accept?

Reference no: EM133157417

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