eBook Problem Walk-Through Adamson Corporation is considering four average-risk projects with the following costs and ra

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Ebook Problem Walk Through Adamson Corporation Is Considering Four Average Risk Projects With The Following Costs And Ra 1 (30.26 KiB) Viewed 39 times

eBook Problem Walk-Through Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost $2,000 1 2 3,000 3 5,000 4 2,000 The company estimates that it can issue debt at a rate of ra 11%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $7.00 per year at $53.00 per share. Also, its common stock currently sells for $46.00 per share; the next expected dividend, D₁, is $4.75; and the dividend is expected to grow at a constant rate of 5% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. 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: %6 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. Expected Rate of Return 16.00% 15.00 13.75 12.50 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-