Suppose Mullens Corporation is considering three average-risk projects with the following costs and rates of return:

Project Cost Expected Rate of Return

1 $3,500 38.00%

2 $4,000 35.00%

3 $3,750 41.00%

Mullens estimates that it can issue debt at a rate of rd=30.00% and a tax rate of T=30.00%. It can issue preferred stock that pays a constant dividend of Dp=$20.00 per year and at Pp=$80.00 per share. Also, its common stock currently sells for P0=$7.50 per share. The expected dividend payment of the common stock is D1=$3.00 and the dividend is expected to grow at a constant annual rate of g=10.00% per year. Mullens target capital structure consists of ws=65.00% common stock, wd=25.00% debt, and wp=10.00% preferred stock.

The after-tax cost of debt is approximately ?

The cost of preferred stock is approximately ?

The cost of common stock is approximately ?

The WAAC is approximately ?

Suppose that Mullens will only accept projects with an expected rate of return that exceeds the WAAC.

Which of the following projects will Mullens accept? Check all that apply.

Project 1

Project 2

Project 3