Empire ElectricCompany (EEC) uses only debt and common equity. It can borrowunlimited amounts at an interest rate of r_d = 11% aslong as it finances at its target capital structure, which callsfor 45% debt and 55% common equity. Its last dividend(D₀) was $1.70, its expected constant growth rate is 5%,and its common stock sells for $29. EEC's tax rate is 25%. Twoprojects are available: Project A has a rate of return of 14%, andProject B's return is 8%. These two projects are equally risky andabout as risky as the firm's existing assets.

1. What is its cost ofcommon equity? Do not round intermediate calculations. Round youranswer to two decimal places.

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2. What is the WACC? Donot round intermediate calculations. Round your answer to twodecimal places.

   part two

   barton Industriesexpects that its target capital structure for raising funds in thefuture for its capital budget will consist of 40% debt, 5%preferred stock, and 55% common equity. Note that the firm'smarginal tax rate is 25%. Assume that the firm's cost of debt,r_d, is 10.3%, the firm's cost of preferred stock,r_p, is 9.5% and the firm's cost of equity is 12.9% forold equity, r_s, and 13.2% for new equity, r_e.What is the firm's weighted average cost of capital(WACC₁) if it uses retained earnings as its source ofcommon equity? Do not round intermediate calculations. Round youranswer to two decimal places.

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   What is the firm’sweighted average cost of capital (WACC₂) if it has toissue new common stock? Do not round intermediate calculations.Round your answer to two decimal places.

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