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 r d 9 , and its tax rate is 25 It can issue preferred stock that pays a constant dividend of $5 00 per year at $54 00 per share Also, its common stock currently sells for $38 00 per share the next expected dividend, D 1 , is $4 25 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 Select AcceptRejectItem 5 Project 2 Select AcceptRejectItem 6 Project 3 Select AcceptRejectItem 7 Project 4 Select AcceptRejectItem 8 Ch 10 End of Chapter Problems The Cost of Capital (i) 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 $5 00 per year at $54 00 per share Also, its common stock currently sells for $38 00 per share the next expected dividend, D1, is $4 25 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 Cost of preferred stock Cost of retained earnings b What is Adamson's WACC Do not round intermediate calculations Round your answer to two decimal places c Only projects with expected returns that exceed WACC will be accepted Which projects should Adamson accept Project 1 Project 2 Project 3 Project 4

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 06, 2024

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

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 r_d = 9%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $5.00 per year at $54.00 per share. Also, its common stock currently sells for $38.00 per share; the next expected dividend, D₁, is $4.25; 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	-Select-AcceptRejectItem 5
Project 2	-Select-AcceptRejectItem 6
Project 3	-Select-AcceptRejectItem 7
Project 4	-Select-AcceptRejectItem 8

image text in transcribed

Ch 10: End-of-Chapter Problems - The Cost of Capital (i) 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 $5.00 per year at $54.00 per share. Also, its common stock currently sells for $38.00 per share; the next expected dividend, D1, is $4.25; 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: Cost of preferred stock: % Cost of retained earnings: % b. What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places. % c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? Project 1 Project 2 Project 3 Project 4