MEC company uses only debt and equity financing . It can borrow an unlimited amount at an interest rate of 10% as long as it finances as its target capital structure which calls for 45 percent debt,and 55 percent common equity. Its las dividend was $2,its expected constant growth rate is 4 percent,and its stock is currently listed at $20 per share. Its tax rate is 40 percent. Two projects are available that they can invest in, the first project “A” has a rate of return 13 percent,and project “B” has a rate of return of 10 percent . Assume that all of its potential projects are equally risky,and as risky as he firm’s other assets. a) Calculate MEC’s cost of common equity. b)Calculate the Weighted Average Cost of Capital (wacc) of MEC. c) Evaluate the projects “A “and “B “ ,and decide which project should MEC select ?
MEC company uses only debt and equity financing . It can borrow an unlimited amount at an interest rate of 10% as long as it finances as its target capital structure which calls for 45 percent debt,and 55 percent common equity. Its las dividend was $2,its expected constant growth rate is 4 percent,and its stock is currently listed at $20 per share. Its tax rate is 40 percent. Two projects are available that they can invest in, the first project “A” has a
a) Calculate MEC’s
b)Calculate the Weighted Average Cost of Capital (wacc) of MEC.
c) Evaluate the projects “A “and “B “ ,and decide which project should MEC select ?
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