10. Problem 10.18 (WACC and Optimal Capital Budget) eBook Problem Walk-Through 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 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 $5.00 per year at $53.00 per share. Also, its common stock currently sells for $37.00 per share; the next expected dividend, D2, is $4.25; 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. 4 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. % Only projects with expected returns that exceed WACC will be Which projects should Adamson accept? -Select- -Select- Project 1 Project 2 Project 3 Project 4 -Select- -Select