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eBook Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of ra = 11% as
eBook Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of ra = 11% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend (Do) was $3.25, its expected constant growth rate is 3%, 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 15%, and Project B's return is 11%. These two projects are equally risky and about as risky as the firm's existing assets. a. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places. % c. Which projects should Empire accept? -Select- eBook Sidman Products's common stock currently sells for $62 a share. The firm is expected to earn $6.82 per share this year and to pay a year-end dividend of $3.00, and it finances only with common equity. a. If investors require an 11% return, what is the expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % b. If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS? (Hint: g = (1 - Payout ratio)ROE). Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
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