Project acceptance and rejection

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Reference no: EM1343556

Project Acceptance/Rejection

Jackson Corporation is evaluating the following four independent, investment opportunities:

Project Cost Rate of Return
A $300,000 14%
B 150,000 10
C 200,000 13
D 400,000 11

Jackson's target capital structure is 60% debt and 40% equity. The yield to maturity on the company's debt is 10%. Jackson will incur flotation costs for a new equity issuance of 12%. The growth rate is a constant 6%. The stock price is currently $35 per share for each of the 10,000 shares outstanding. Jackson expects to earn net income of $100,000 this coming year and the dividend payout ratio will be 50%. If the company's tax rate is 30%, which of the projects will be accepted?

Reference no: EM1343556

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