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Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 9% as long as it finances at its target capital structure, which calls for 50% debt and 50% common equity. Its last dividend (D0) was $2.85, its expected constant growth rate is 3%, and its common stock sells for $20. 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 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. Do not round your intermediate calculations. %
What is the WACC? Round your answer to two decimal places. Do not round your intermediate calculations.
Market A deals in low-risk securities with an average interest rate of 5%. Market B deals in high-risk securities with an average interest rate of 7%. Suddenly there is a financial crisis and the economy enters recession. Before the recession, the ri..
James River Corp has preferred stock outstanding that trades at $125. If the stock yields 8%, what is the expected value of each quarterly dividend payment?
Holding all else constant, the future value of an investment will increase if:
Aspen's Distributors has a cost of equity of 13.84% and an unlevered cost of capital of 12%. The company has $5,000 in debt that is selling at par value. The levered value of the firm is $12,000 and the tax rate is 34%. What is the pre-tax cost of de..
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value bonds with a 15 year maturity at a price of $946 that carry a coupon interest rate of 12.4 percent that is..
Five years ago, Midway Community Hospital issued 20-year municipal bonds with a 9 percent annual coupon rate. The bonds were called today for a $90 call premium – that is, bondholders received $1,090 for each bond. What is the realized rate of return..
A stock has an annual return of 11 percent and a standard deviation of 44 percent. What is the smallest expected loss over the next year with a probability of 1 percent?
A company currently pays a dividend of $4 per share (D0 = $4). It is estimated that the company's dividend will grow at a rate of 21% per year for the next 2 years, then at a constant rate of 7% thereafter. The company's stock has a beta of 0.9, the ..
A company currently pays a dividend of $3.75 per share (D0 = $3.75). It is estimated that the company's dividend will grow at a rate of 21% per year for the next 2 years, then at a constant rate of 7% thereafter. The company's stock has a beta of 1.0..
Company B just paid an annual dividend of $.42 a share. The stock is selling for $18 a share and has a growth rate of 2.2 percent. What is the dividend yield, using the constant growth model?
West County Corp. is considering a new project with estimated depreciation of $34,000, fixed costs of $35,000, and total sales of $73,600. The variable costs per unit are estimated at $4.60. What is the accounting break-even level of production?
A years at 6% convertible quarterly. Showing your work using actuarial notation, find the outstanding loan balance at the end of the second year using loan of $1000 is being repaid with quarterly payments at the end of each quarter for five
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