Midwest Electric Company (MEC) uses only debt and common equity. It can borrow u

Question

Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate ofrd = 10% as long as it finances at its target capital structure, which calls for 25% debt and 75% common equity. Its last dividend (D0) was $1.80, its expected constant growth rate is 4%, and its common stock sells for $27. MEC's tax rate is 40%. Two projects are available: Project A has a rate of return of 10%, while Project B's return is 9%. These two projects are equally risky and about as risky as the firm's existing assets.

Explanation / Answer

What is its cost of common equity? Round your answer to two decimal places

10.93%

What is the WACC? Round your answer to two decimal places

9.70%

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