Adamson Corporation is considering four average-risk projects with the following costs and rates of return:
Project | Cost | Expected Rate of Return | |
1 | $2,000 | 16.00% | |
2 | 3,000 | 15.00 | |
3 | 5,000 | 13.75 | |
4 | 2,000 | 12.50 |
The company estimates that it can issue debt at a rate of rd = 11%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $4.00 per year at $47.00 per share. Also, its common stock currently sells for $33.00 per share; the next expected dividend, D1, is $3.75; and the dividend is expected to grow at a constant rate of 5% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.
What is the cost of each of the capital components? Do not round intermediate calculations. Round your answers to two decimal places.
Cost of debt: %
Cost of preferred stock: %
Cost of retained earnings: %
What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places.
%
Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?
Project 1 | -Select-AcceptReject |
Project 2 | -Select-AcceptReject |
Project 3 | -Select-AcceptReject |
Project 4 | -Select-AcceptReject |
RATE ME A GOOD STAR IF YOU LIKE THE ANSWER
Get Answers For Free
Most questions answered within 1 hours.