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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 = 9%, as long
- Empire Electric Company (EEC) 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 $2.20, its expected constant growth rate is 6%, and its common stock sells for $26. EECs tax rate is 40%. Two projects are available: Project A has a rate of return of 12% and Project Bs return is 11%. These two projects are equally risky and about as risky as the firms existing assets.
- What is its cost of common equity?
- What is the WACC?
- Which projects should Empire accept?
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The Handbook Of Credit Portfolio Management
Authors: Greg Gregoriou, Christian Hoppe
1st Edition
0071598340, 978-0071598347
