Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 tructure, which calls for 40% debt and 60% common equity. Its last dividend ( D0) was $2.10, its expected constant growth rate is 5%, and its common stock sells for $26. EC's tax rate is 25%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 10%. These two projects are equally risky and about as isky 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. % Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $111.50, but flotation costs will be 10% of the market price, so the net price will be $100.35 per share. What is the cost of the preferred stock, including flotation? Round your answer to two decimal places. %
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started