10.1 COST OF COMMON EQUITY AND WACC AAA Company has a target capital structure of 60% common equity and 40% debt to fund its $10 billion in operating assets. Furthermore, AAA has a WACC of 15%, a before-tax cost of debt of 10%, and a tax rate of 35%. There is no floatation cost. Its expected dividend next year (D1) is $3, and the current stock price is $40. What is the companys expected growth rate on its dividends? (show formulas used)

10.2 WACC AND OPTIMAL CAPITAL BUDGET AAA Company is considering three independent, equally risky projects with the same initial cost and the following internal rates of return: Project 1 20%, Project 2 15%, Project 3 10%. The company estimates that it can issue debt at a rate of rd=12%, and its tax rate is 35%. It can issue preferred stock that pays a constant dividend of $10 per year at $50 per share. Also, its common stock currently sells for $40 per share; the next expected dividend, D1, is $6, and the dividend is expected to grow at a constant rate of 5% per year. The target capital structure consists of 50% common stock, 20% debt, and 30% preferred stock.

What is the after-tax cost of debt, cost of preferred stock and cost of common equity?

What is AAAs WACC?

Which projects should the company accept?