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WACC Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd 10 % as
WACC 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 45% debt and 55% common equity. Its last dividend (Do) was $2.30, its expected constant growth rate 4%, and its common stock sells for $20. EEC's tax rate 40%. Two projects are available: Project A has a rate of return of 11%, and Project B's return is 12%. These two projects are equally risky and about as risky as the firm's existing assets. a. What is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. b. What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations. % c. Which projects should Empire accept? -Select
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