- The Selections For Part C Are Either Accept Or Reject 1 (20.11 KiB) Viewed 96 times
The selections for Part C are either "ACCEPT" or "REJECT"
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The selections for Part C are either "ACCEPT" or "REJECT"
The selections for Part C are either "ACCEPT" or "REJECT"
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: 1 Project Cost Expected Rate of Return $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 12.50 The company estimates that it can issue debt at a rate of ra = 10%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $6.00 per year at $60.00 per share. Also, its common stock currently sells for $50.00 per share; the next expected dividend, D1, is $5.25; and the dividend 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. 2,000 a. 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: % b. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places. % c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? Project 1 Project 2 Project 3 Project 4 -Select- -Select- -Select- -Select-
Adamson Corporation is considering four average-risk projects with the following costs and rates of return: 1 Project Cost Expected Rate of Return $2,000 16.00% 2 3,000 15.00 3 5,000 13.75 4 12.50 The company estimates that it can issue debt at a rate of ra = 10%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $6.00 per year at $60.00 per share. Also, its common stock currently sells for $50.00 per share; the next expected dividend, D1, is $5.25; and the dividend 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. 2,000 a. 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: % b. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places. % c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? Project 1 Project 2 Project 3 Project 4 -Select- -Select- -Select- -Select-