Problem 10-12 WACC

Midwest Electric Company (MEC) 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 40% debt and 60% common equity. Its last dividend (D0) was $1.90, its expected constant growth rate is 6%, and its common stock sells for $29. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 15%, while Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets.

What is its cost of common equity? Round your answer to two decimal places. %

What is the WACC? Round your answer to two decimal places. %

Which projects should Midwest accept?