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 $4.00 per year at $48.00 per share. Also, its common stock currently sells for $33.00 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? 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 or reject Project 2 accept or reject Project 3 accept or reject Project 4 accept or reject
Adamson Corporation is considering four average-risk projects with the following costs and
| 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
-
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 or reject Project 2 accept or reject Project 3 accept or reject Project 4 accept or reject
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
