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 per share; the next expected dividend, D1, is $4.25; 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? Round your answers to two decimal places. Do not round your intermediate calculations. (Cost of debt % Cost of preferred stock % Cost of retained earnings %)

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

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project...

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...

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...

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 capital $100,000 Straight-line depreciation rate 25% but zero salvage value after four years Annual sales revenues (constant for every year) $75,000 Operating costs (excl. depreciation) (also constant) $25,000 Tax rate 21.0%

The Brookfield Corporation is considering a four-year project with the following data; What is the project...

The Brookfield Corporation is considering a four-year project with the following data; What is the project NPV using wacc of 11.3%? Additional investment in fixed assets but no additional working capital $100,000 Straight-line depreciation rate 25% but zero salvage value after four years Annual sales revenues (constant for every year) $75,000 Operating costs (excl. depreciation) (also constant) $25,000 Tax rate 21.0% Trumbull Inc. has $4.8 million EBIT, $1.2 million depreciation, a tax rate of .4, a capital expenditure of $0.7 million,...

Q Corporation is considering investing in the following projects: Project A Project B Initial cash outlay...

Q Corporation is considering investing in the following projects: Project A Project B Initial cash outlay $(200,000) $(140,000) Future cash inflows: Year 1 $ 50,000 $ - Year 2 50,000 - Year 3 50,000 - Year 4 50,000 40,000 Year 5 50,000 90,000 Year 6 50,000 140,000 Total cash inflows $300,000 $ 270,000 The company’s cost of capital is 8%, which is an appropriate discount rate. Required: Compute the net present value of each project. Use a clear presentation of...

There are two projects that the company is considering: Project A costs 10,000 to implement today,...

There are two projects that the company is considering: Project A costs 10,000 to implement today, and it brings subsequent cash flows of 5,900 at the end of year 1; 2,000 at the end of year 2; 5,000 at the end of year 3. Project B's initial cost is 7,500, and subsequent cash flows are 5,000 per year for 3 years. WACC is 8% for both projects. Calculate NPV and IRR for each project, and decide which to recommend.

There are two projects that the company is considering: Project A costs 10,000 to implement today,...

There are two projects that the company is considering: Project A costs 10,000 to implement today, and it brings subsequent cash flows of 5,000 at the end of year 1; 4,000 at the end of year 2; 6,000 at the end of year 3. Project B's initial cost is 12,000, and subsequent cash flows are 6,000 per year for 3 years. WACC is 8% for both projects. a. Calculate NPV and IRR for each project, and decide which one to...

Subjects