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 $7.00 per year at $57.00 per share. Also, its common stock currently sells for $44.00 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.

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: %

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

Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? Project 1 Project 2 Project 3 Project 4