Transcribed Image Text
Click here to read the eBook: The Cost of Retained Earnings,rsClick here to read the eBook: Composite, or Weighted Average, Costof Capital, WACCWACCEmpire Electric Company (EEC) 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 capitalstructure, which calls for 30% debt and 70% common equity. Its lastdividend (D0) was $2.95, its expected constant growthrate is 4%, and its common stock sells for $21. EEC's tax rate is40%. Two projects are available: Project A has a rate of return of15%, and Project B's return is 8%. These two projects are equallyrisky and about as risky as the firm's existing assets.What is its cost of common equity? Round your answer to twodecimal places. Do not round your intermediate calculations.%What is the WACC? Round your answer to two decimal places. Donot round your intermediate calculations.%Which projects should Empire accept?-Select-Project A Project B