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Midwest Electric Company (MEC) 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 $2.40, its expected constant growth rate is 4%, and its common stock sells for $24. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 13%, while 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. % What is the WACC? Round your answer to two decimal places. % Which projects should Midwest accept, A or B?

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Financial Management, Finance

Category:- Financial Management
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