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.

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

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

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

r_e = %.

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 r_d = 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.

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?

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.

Expert Solution

jeff jeffy answered 9 months ago

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