Business, 18.12.2019 21:31 trentonthreats5073

Midwest electric company (mec) is considering the purchase of another utility supplier in order to install smart technology in customer homes. this technology allows midwest to read the electric meters more accurately. mec can borrow unlimited amounts at an interest rate of rd = 7% as long as it finances at its target capital structure, which calls for 55% debt and 45% common equity. its last dividend was $2, its expected constant growth rate is 4%, and its common stock sells for $20. mec’s tax rate is 40%. two projects are available: project a has a rate of return of 13%, while project b’s return is 10%. these two projects are equally risky and about as risky as the firm’s existing assets. a. what is mec’s cost of debt before taxes?

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