Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of ra = 9% as long as it finances at its target capital structure, which ca 50% debt and 50% common equity. Its last dividend (Do) was $3.30, its expected constant growth rate is 6%, and its common stock sells for $27. EEC's tax rate is 40%. Two projects are avail Project A has a rate of return of 13%, 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? 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. c. Which projects should Empire accept? -Select

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Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of ra = 9% as long as it finances at its target capital structure, which calls for
50% debt and 50% common equity. Its last dividend (Do) was $3.30, its expected constant growth rate is 6%, and its common stock sells for $27. EEC's tax rate is 40%. Two projects are available:
Project A has a rate of return of 13%, 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? 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.
c. Which projects should Empire accept?
|-Select-
Transcribed Image Text:Office eBook Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of ra = 9% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. Its last dividend (Do) was $3.30, its expected constant growth rate is 6%, and its common stock sells for $27. EEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 13%, 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? 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. c. Which projects should Empire accept? |-Select-
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