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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 15.00%
2 3,000 15.00
3 5,000 13.?5
4 2,000 12.50
The companjur estimates that it can issue debt at a rate of rd 2 9%, and its tax rate is 25%. It can issue preferred stock that pays a oonstant dividend of $100 per year at $48.00 per share. Also, its common stock currently sells for $35.00 per share; the next expected dividendr D1, is $3.25; and the dividend is expected to grow at a constant rate of 6% per year. The target capital stmcture consists of }‘5% common stock, 15% debt. and 10% prefen-ed stock.
Question 1: What is the cost of each of the capital components? Do not round intermediate calculations. Round your answers to two decimal places.
Question 2: What is Adamson's WACC? Do not round intermediate calculations. Round your answer to two decimal places.
Question 3: Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?
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