Gulf Electric Company Gauteng Electric Company (GEC) Uses Only Debt and Equity in and Equity

Gulf Electric Company
Gauteng Electric Company (GEC) uses only debt and equity in its capital structure.It can borrow unlimited amounts at an interest rate of 10 percent so long as it finances at its target capital structure, which calls for 55 percent debt and 45 percent ordinary equity.Its last dividend was R2.20; its expected constant growth rate is 6 percent; its shares sells on the JSE at a price of R35; and new shares would net the company R30 per share after flotation costs.GEC's tax rate is 40 percent, and it expects to have R100 million of retained earnings this year.GEC has two projects available: Project A has a cost of R200 million and a rate of return of 13 percent, while Project B has a cost of R125 million and a rate of return of 10 percent.All of the company's potential projects are equally risky.
-Refer to Gauteng Electric Company.Assume now that GEC needs to raise R300 million in new capital.What is GEC's marginal cost of capital for evaluating the R300 million in capital projects and any others that might arise during the year?

A) 6.00%
B) 13.77%
C) 12.66%
D) 9.50%
E) 9.00%