Question

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 per share; the next expected dividend, D1, is $5.75; 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? Project1, Project 2, Project 3, Project 4

Answer 1