Adamson Corporation is considering four average-risk projects with the following costs and rates of return:

The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 35%. It can issue preferred stock that pays a constant dividend of $3 per year at $58 per share. Also, its common stock currently sells for $37 per share; the next expected dividend, D1, is $4.75; 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? Round your answers to two decimal places. Do not round your intermediate calculations.

Cost of debt %

Cost of preferred stock %

Cost of retained earnings %

b) What is Adamson's WACC? Round your answer to two decimal places. Do not round your intermediate calculations. %

c) Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?

Project 1 2. Cost $2,000 3,000 5,000 2,000 Expected Rate of Return 16.00% 15.00 13.75 12.50 3 4