Question
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
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 | |
4 | 2,000 | 12.50 |
The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $6.00 per year at $60.00 per share. Also, its common stock currently sells for $52.00 per share; the next expected dividend, D1, is $5.75; 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.
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What is the cost of each of the capital components? Do not round intermediate calculations. Round your answers to two decimal places.
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