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4 Candice My Home Courses Catalog and Study Tools CENGAGE MINDTAP Ch 10-End-of-Chapter Problems - The Cost of Capital Back to Assignment Attempts Keep the Highest/8 7. Problem 10.18 (WACC and Optimal Capital Budget) Rental Options College Success Tips Career Success Tips Help Give Feedback eBook Problem Walk-Through Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost 1 $2,000 2 3,000 3 4 5,000 2,000 Expected Rate of Return 16.00% 15.00 13.75 12.50 Q Search this course 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 $51.00 per share. Also, its common stock currently sells for $40.00 per share; the next expected dividend, D, is $4.25; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. 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. % c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? A-Z