7. Problem 10.18 (WACC and Optimal Capital Budget) 2 3 4 12.50 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% 3,000 15.00 5,000 13.75 2,000 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 $7.00 per year at $54.00 per share. Also, its common stock currently sells for $45.00 per share the next expected dividend, DL, Is 55,25; 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 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 996 b. What is Adamson's WACC? Do not round Intermediate calculations, Round your answer to two decimal places % 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? Project 1 -Select- Project 2 Select Project 3 -Select- Project 4 -Select