Question
In: Finance
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
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 = 10%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $6 per year at $42 per share. Also, its common stock currently sells for $38 per share; the next expected dividend, D1, is $4.50; and the dividend is expected to grow at a constant rate of 4% 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 accept/reject Project 2 accept/reject Project 3 accept/reject Project 4 accept/reject
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
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 = 10%, and its tax rate is 25%. It can issue
preferred stock that pays a constant dividend of $5.00 per year at
$59.00 per share. Also, its common stock currently sells for $46.00...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
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
= 10%, and its tax rate is 40%. It can issue preferred stock that
pays a constant dividend of $5 per year at $45 per share. Also, its
common stock currently sells for $34...
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...
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 = 9%, and its tax rate is 25%. It can issue preferred
stock that pays a constant dividend of $4.00 per year at $55.00 per
share. Also, its common stock currently sells for $43.00...
WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following costs...
WACC and optimal capital budget
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 =
10%, and its tax rate is 35%. It can issue preferred stock that
pays a constant dividend of $6 per year at $48 per share. Also, its
common...
Glencor is evaluating four average-risk projects with the following costs and rates of return: Project Cost...
Glencor is evaluating four average-risk projects with the
following costs and rates of return: Project Cost (R) Expected Rate
of Return
Project
Cost (R)
Expected Rate of Return
1
2000
16%
2
3000
15%
3
0
13,75%
4
2000
12,50%
The company estimates that it can issue debt at a rate of rd
=10%, and its tax rate is 30%. It can issue preferred shares that
pays a constant dividend of R5.00 per year at R49.00 per share.
Also, its...
Excel Online Structured Activity: WACC and optimal capital budget Adamson Corporation is considering four average-risk projects...
Excel Online Structured Activity: WACC and optimal capital
budget
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 35%. It can issue
preferred stock that pays a constant dividend of $6 per year at $47
per...
GeoGrocers is considering the following independent, average-risk investment projects: Project Size of Project Project IRR Project...
GeoGrocers is considering the following independent,
average-risk investment projects: Project Size of Project Project
IRR Project A $1.0 million 12.0% Project B 1.2 million 11.5%
Project C 1.2 million 11.0% Project D 1.2 million 10.5% Project E
1.0 million 10.0% The company has a target capital structure that
consists of 50 percent debt and 50 percent equity. Its after-tax
cost of debt is 8 percent, its cost of equity is estimated to be
13.5 percent, and its net income is...
Seacera Tiles Corp is considering the following average risk projects for its next investment period: Project...
Seacera Tiles Corp is considering the following
average risk projects for its next
investment period:
Project IRR (%) Investment (RM)
A 11.90 2,000,000.00
B 11.25 2,500,000.00
C 12.17 3,000,000.00
D 11.72 1,500,000.00
E 11.03 2,000,000.00
Seacera has 10,000 bonds outstanding that were issued for 30 years
ten years ago at a par
value of RM1,000.00 and a coupon rate of 12%, with interest paid
semi-annually. Similar
bonds are now selling to yield 9%. Tax rate is 40%.
It issued 40,000...
The Glenn Corporation is considering a four-year project with the following data; What is the project...
The Glenn Corporation is considering a four-year project with
the following data; What is the project NPV using wacc of 5.4%?
Additional investment in fixed assets but no additional working
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Straight-line depreciation rate 25% but zero salvage value after
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Annual sales revenues (constant for every year) $75,000
Operating costs (excl. depreciation) (also constant) $25,000
Tax rate 21.0%
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The Brookfield Corporation is considering a four-year project
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11.3%?
Additional investment in fixed assets but no additional working
capital $100,000
Straight-line depreciation rate 25% but zero salvage value after
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Trumbull Inc. has $4.8 million EBIT, $1.2 million
depreciation, a tax rate of .4, a capital expenditure of $0.7
million,...
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