Adams Corp. is considering four average-risk projects with the following costs & rates of returns: Adams has

Question:

Adams Corp. is considering four average-risk projects with the following costs & rates of returns:

Adams has a cost of debt = 10%, tax rate is 30%. Adams can issue preferred stock that pays a constant dividend of $5 per year at $49 per share. Adams common stock sells for $36 per share, the next expected dividend, D1, is $3.50, and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure is 75% common stock, 15% debt, and 10% preferred stock.
1) What is the cost of each of the capital components?
2) What is Adams WACC?
3) Only projects with expected return that exceed WACC will be accepted. Which project should Adams accept?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...