1. The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 10%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals $1,135. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Calculate Paulson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations.

Assets			Liabilities And Equity
Cash	$ 120		Accounts payable and accruals	$ 10
Accounts receivable	240		Short-term debt	55
Inventories	360		Long-term debt	$1,080
Plant and equipment, net	2,160		Common equity	1,735
Total assets	$2,880		Total liabilities and equity	$2,880

_______%

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2. 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 r_d = 10%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $4 per year at $52 per share. Also, its common stock currently sells for $35 per share; the next expected dividend, D₁, is $3.50; and the dividend is expected to grow at a constant rate of 7% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

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.

_____________%

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