What is the cost of common equity

Reference no: EM13266152

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 35% debt and 65% common equity. Its last dividend (D0) was $3.30, its expected constant growth rate is 5%, and its common stock sells for $29. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, while Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets.

a. What is the cost of common equity?

b. What is the WACC?

Reference no: EM13266152

Questions Cloud

What third resistor to create a voltage divider output of 10 : two resistors with nominal values of 4.7K ohm and 10K ohm, are used in a voltage divider with a +15V supply to create a nominal +10V output. Assuming the resistor values to be exact, what is the actual output voltage produced

what is the value of this endowment in today dollars : Assuming the cost of money is 3%, what is the value of this endowment in today's dollars? Show your work.

Locate different mission statements on the internet : Locate different mission statements on the Internet. Analyze and compare the three mission statements using Campbell's ten questions. Which one is best?

What would its present value be : If interest rates doubled to 12%, what would its present value be? Round your answer to the nearest cent.

What is the cost of common equity : MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, while Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets.

Describe the characteristics of the series rc filter circuit : Describe the characteristics of the series RC filter circuit with the output across the resistive component. Distinguish the pass and stop bands with reference to the cutoff frequency. Also, state what happens to the circuit complex impedance at t..

Explain what mass in grams of co2 is produced : A sample of CaCO3 with a mass of 4.74 g is placed in 500.0 mL of 0.63M HCl, forming CaCl2, H2O, and CO2. What mass in grams of CO2 is produced

What is percy cost of common equity : Percy's CFO estimates that the company's WACC is 13.40%. What is Percy's cost of common equity? Round your answer to two decimal places.

What is heuser tac cost of debt : If its marginal tax rate is 40%, what is Heuser's tac cost of debt? Round your answer to two decimal places.

User Account

All Pages