Question
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of r d = 10% as
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 10% as long as it finances at its target capital structure, which calls for 25% debt and 75% common equity. Its last dividend (D0) was $2.40, its expected constant growth rate is 4%, and its common stock sells for $23. 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 12%. These two projects are equally risky and about as risky as the firm's existing assets.
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What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.
%
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What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places.
%
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