Electric company uses only debt and common equity

Assignment Help Financial Management
Reference no: EM131552920

WACC Empire Electric Company (EEC) 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 45% debt and 55% common equity. Its last dividend (D0) was $3.25, its expected constant growth rate is 5%, 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 14%, and Project B's return is 8%. 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. Do not round your intermediate calculations. %

What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations. %

Which projects should Empire accept?

Reference no: EM131552920

Questions Cloud

Difference between cash outflow and expense : Explain the difference between a cash outflow and an expense, provide 1 common example of a business expense that is not a cash outflow.
According to the Capital Asset Pricing Model : The stock of Verde Enviro-Systems has a beta of 1.7. according to the Capital Asset Pricing Model,
What rate would a zero coupon taxable bond to yield : what rate would a zero coupon taxable bond to yield before taxes if it were to have a 4.7 percent after-tax yield?
Identify an organization you are familiar with that needs : Identify an organization you are familiar with that needs to make a change in its culture, and then use Nadler's Twelve Interventions for Operating Environment.
Electric company uses only debt and common equity : WACC Empire Electric Company (EEC) uses only debt and common equity. What is its cost of common equity? Which projects should Empire accept?
What is your estimate of callahan cost of common equity : Using the DCF approach, what is its cost of common equity? what is your estimate of Callahan's cost of common equity?
Assuming floating bond has no default risk : Assuming the floating bond has no default risk, what is the price today of the bond?
What would be the cost of equity from new stock : If the company issued new stock, it would incur a 16% flotation cost. What would be the cost of equity from new stock?
What is its cost of common equity and wacc : What is its cost of common equity and its WACC?

Reviews

Write a Review

Financial Management Questions & Answers

  Show what happens to output and the real exchange rate

Using graphs, show what happens to output and the real exchange rate under three assumptions about Boversia's monetary policy:

  Discuss the capital costs and required capacity factor

Research and build a data file including 24 h of electrical demand data for 30 residences, 15 shops, and 5 factories, along with some wind speed data.

  What is your total dollar return on this investment

Four months ago, you purchased 1,500 shares of Lakeside Bank stock for $21.20 a share. You have received dividend payments equal to $.60 a share. Today, you sold all of your shares for $22.20 a share. What is your total dollar return on this investme..

  Keep the equilibrium federal funds rate unchanged

Suppose that banks increase their demand for reserves. Show how the Fed can offset this change through open market operations in order to keep the equilibrium federal funds rate unchanged.

  Did bank of canada respond to movements in exchange rate

Over 2005-2007, did the Bank of Canada respond to movements in the exchange rate in the manner described in the case study

  What is the degree of operating leverage for each

Two Companies, Oplev and Finlev, Each have sales of 100,000 unites at a $2.00 cost/unit. Oplev has Variable Cost of $1.25/unit and a Fixed Cost of $60,000.. Finley has Variable cost of $1.75/unit and a fixed cost of $10,000. What is the Degree of Ope..

  Getting ready to produce a new line of gold clubs

McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $847,500, and $1,200,000 over the next three years. What is the payback period ..

  Stock trading system

Download a financial data (e.g. stock, gold, and oil price) from any web site like Yahoo finance, Google finance, quandl.com, and so on. i. You may need to figure out how to extract the data from those web sites by yourself. It’s recommended to use A..

  What was the last dividend

S. Ramos Company’s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Goode's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0? show work.

  What is the company market value debt–equity ratio

Frusciante, Inc. has 320,000 bonds outstanding. The bonds have a par value of $1,000, a coupon rate of 5.8 percent paid semiannually, and 12 years to maturity. The current YTM on the bonds is 6.3 percent. The company also has 9.5 million shares of st..

  What is the wacc for the firm with its new capital structure

Eddie’s Electronics Limited has an EBIT of $450,000 that it expects it will earn forever, and it pays all of it’s earnings as dividends to shareholders (ie., no growth). The firm has a corporate tax rate of 40% and has an un-levered beta of .90. What..

  Assume business can receive guaranteed annual payment

Assume a business can receive a guaranteed annual payment of $1M forever. If the appropriate discount rate 12.0%, how much should the business be willing to pay today for these future payments (hint: is this an annuity, annuity due, or perpetuity)?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd