Problem 10.18 (WACC and Optimal Capital Budget) Question 7 of 7 Check My Work (No more tries available) eBook Problem Walk-Through 1 3,000 3 Adamson Corporation is considering four average-risk projects with the following costs and rates of return: Project Cost Expected Rate of Return $2,000 16.00% 2 15.00 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd = 11%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $7.00 per year at $60.00 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. a. 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: 1.24 % Cost of preferred stock: 1.17 % % Cost of retained earnings: 11.85 b. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places. 14.25 % c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? Project 1 Project 2 Project 3 Accept Accept Rejectvo Project 4 Reject Hide Feedback Partially Correct Check My Work (No more tries available) 0=Icon Key