Financial Management

1. ABC Limited has four (4) investment projects with the following costs and expected rates of return. All projects are independent of each other. The firm estimates that it can issue debt at a before tax cost of 18%, and its tax rate is 40%. It can also issue preferred stock at $65 per share, which pays a constant dividend of $8 per year. ABC Limited stock constantly sells at $54 per share. The year-end divided is expected to be $5.0 and is expected to grow at a constant rate of 7%. The company's capital structure consists of 60% common stock, 10% debt, and 30% preferred stock. (a) What is the cost of each of the components? (b) What is the Weighted Average Cost of Capital (WACC)? If all the projects are of average risk, which should the firm select