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Part one The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is 4%;...

Part one

The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is 4%; and its common stock now sells for $38.00. New stock (external equity) can be sold to net $30.40 per share.

  1. What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places.

    rs = %

  2. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.

    F = %

  3. What is Evanec's cost of new common stock, re? Do not round intermediate calculations. Round your answer to two decimal places.

    re = %.

part two

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 $7.00 per year at $57.00 per share. Also, its common stock currently sells for $50.00 per share; the next expected dividend, D1, is $4.75; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.

  1. 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: %

  2. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places.

    %

  3. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?

part 3

5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and a 9% coupon, semiannual payment ($45 payment every 6 months). The bonds currently sell for $896.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt? Do not round intermediate calculations. Round your answer to two decimal places.

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