Adamson Corporation is considering tour average-risk projects with the following costs and rates of return Project Cost Expected Rate of Return 16.00% 1 52.000 3,000 2 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of 99, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $ per year at 548 per share. Also, its common stock currently sells for 136 per share the next expected dividend. Dis $4.50, and the dividend is expected to grow at a constant rate of 4% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet 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 B D E 1 WACC and optimal capital budget 2 3 Cost of debt, 4 Tax rate, T 5 Preferred dividend 5 Preferred stock price, Pp 7 Common stock price, Po B Expected common dividend, D, Common stock constant growth rate, O % common stock in capital structure 1 % debt in capital structure 2 % preferred stock in capital structure 3 Cost of capital components 4 & WACC calculation: 5 After-tax cost of debt, ra(1-T) 6 Cost of preferred stock, p -7 Cost of common stock, to 8 9 20 Project acceptance analysis: 9.00% 30.00% $3.00 $48.00 $36.00 $4.50 4.00% 75.00% 15.00% 10.00% Weighted Cost Weights After-tax Cost 15.00% 10.00% 75.00% WACC = Accept Project? Y/N Cost $2,000 $3,000 $5.000 $2,000 Rate of Return 16.00% 15.00% 13.75% 12.50% 21 Projects 22 1 03 2 3 25 4 26 27 Formulas 28 Cost of capital components 29 & WACC calculation: 30 After-tax cost of debt, (1-T) 31 Cost of preferred stock, 32 Cost of common stock, 33 34 35 Project acceptance analysis 36 Projects 37 1 38 2 39 3 40 41 42 Weights After-tax Cost 15.00% #N/A 10.00% #N/A 75.00% WNA WACC = Weighted Cost #NA #N/A #NA #N/A Cost $2,000 $3,000 $5,000 $2,000 Rate of Retum 16.00% 15.00% 13.75% 12.50% Accept Project? Y/N #N/A #NA #NA WNA