Chapter 5, Problem 22CP

Summit Industries has income from operations of $180,000, invested assets of $900,000, and sales of $2,250,000. Use the DuPont formula to compute the rate of return on investment.

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Pacific Power Corporation (PPC) uses only debt and common equity in its capital structure. The company can borrow unlimited amounts at an interest rate of 8% while maintaining its target capital structure of 45% debt and 55% common equity. Its last dividend (DO) was $2.20, the expected constant growth rate is 5%, and its common stock currently sells for $32. PPC's tax rate is 35%. The company is evaluating two investment projects: Project X with a return of 11% and Project Y with a return of 9%. Both projects have similar risk levels that match the company's existing operations. What is PPC's cost of common equity?