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Cost of common equity and WACC

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Midwest Electric Company (MEC) uses only debt and equity. It can borrow unlimited amounts at an interest rate of 10 percent as long as it finances at its target capital structure, which calls for 45 percent debt and 55 percent common equity. Its last dividend was $2, its expected constant growth rate is 4 percent, and its stock sells for a price of $20. MEC's tax rate is 40%.

a. What is the company's cost of common equity?

b. What is the company's WACC?

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It shows the computation of cost of common equity and WACC with the help of an example

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WACC/COST OF EQUITY

Midwest Electric Company (MEC) uses only debt and equity. It can borrow unlimited amounts at an interest rate of 10 percent as long as it
finances at its target capital structure, which calls for 45 percent debt and 55 percent common ...

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