vo/detalldeploymentid-5933142208502701512295358 SUN 978133791100snapshold-7235000 1002301352N M McGwHill Come the entersdothing donya groue Cical Chemistry Social media Paper hopper HGAGE | MINDTAP line Activity: WACC and optimal capital budget Search this col Video Excel Online Structured Activity: WACC and optimal capital budget Adamson Corporation is considering four average risk projects with the following costs and rates of return; Project Cost Expected Rate of Return 1 $2,000 16.00% 2 3.000 15.00 13.75 5,000 2.000 4 12.50 The company estimates that it can be debt at a rate of to - 10%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of 16 per year at $55 per hare, Aluo. its common stock currently sells for 132 per share the next expected dividend. De la $1.25; and the dividend is expeded to grow at a constant rate of os 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 2. 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 $56 per share. Also, its common stock currently sells for $32 per share the next expected dividend, D, is $3.25; and the dividend is expected to grow at a con rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. The data has been collected in the Microso Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. 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, c. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? Project 1 Project 2 Project Project 4 J Iz B D 1 VACC and optimal capital budget UJ N 3 Cost of debt, rs 4 ax rate, T 5 Preferred dividend 6 Preferred stock price. Pp. 7 Common stock price, Po 8 Expected common dividend, D 9 Common stock constant growth rate, 9n 10 % common stock in capital structure 11 6 debt in capital structure 12 preferred stock in capital structure 13 Cost of capital components 14 & WACC calculation: 15 After-tax cost of debt, ra(1 - T) 16 Cost of preferred stock, Tp 17 Cast of common stock, s 10.00% 40.00% $6.00 $56.00 $32.00 $3.25 6.00% 75.00% 15.00% 10.00% Weighted Cost Weights After-tax Cost 15.00% 10.00% 75.00% WACC = 18 19 20 Project acceptance analysis: Projects Accept Project? YIN 21 22 23 24 2 Cost $2.000 53.000 55000 52.000 Rate of Retum 16.00% 15.00% 13 75% 12 50% 4 26 Formulas A Putor COTTWO STULT, TS B 0070 I WACC = 18 19 20 Project acceptance analysis. 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 23 2. 24 3 25 4 26 27 Formulas 28 Cost of capital components 29 & WACC calculation: 30 After-tax cost of debt.rs(1 - 1) 31 cost of preferred stock. To 32 Cost of common stock. Ts 33 34 35 Project acceptance analysis: Weights After-tax Cost 15.00% #N/A 10.00% #N/A 75.00% #N/A WACC = Weighted Cost #N/A #N/A #N/A #N/A Projects 36 37 38 2 3 Cost $2.000 $3.000 $5.000 $2.000 Rate of Return 16.00% 15.00% 13.75% 12 50% Accept Project? Y/N #N/A #N/A #N/A #N/A 40
