Midwest Electric Company (MEC) 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 was S2, its expected constant growth rate is 4%, and its common stock sells for $20. MEC's tax rate is 40%. What is the WACC? a. 10% b. 10.62% c. 13% d. 14.40% e. 15.50%
Midwest Electric Company (MEC) 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 was S2, its expected constant growth rate is 4%, and its common stock sells for $20. MEC's tax rate is 40%. What is the WACC? a. 10% b. 10.62% c. 13% d. 14.40% e. 15.50%
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 1P
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Transcribed Image Text:10.
Midwest Electric Company (MEC) 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
was S2, its expected constant growth rate is 4%, and its common stock sells for $20.
MEC's tax rate is 40%. What is the WACC?
a. 10%
b. 10.62%
c. 13%
d. 14.40%
e. 15.50%
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