The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $6.00 per year at $56.00 per share. Also, its common stock currently sells for $43.00 per share; the next expected dividend, D1, is $3.75; and the dividend is expected to grow at a constant rate of 7% 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.
The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $6.00 per year at $56.00 per share. Also, its common stock currently sells for $43.00 per share; the next expected dividend, D1, is $3.75; and the dividend is expected to grow at a constant rate of 7% 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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Adamson Corporation is considering four average-risk projects with the following costs and
| 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 rd = 10%, and its tax rate is 25%. It can issue
-
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.
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Chapter 10 End of Chapter Problems - Counts Towards Grade
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Problem Walk-Through
Adamson Corporation is considering four average-risk projects with the following costs and rates of return:
Project
Cost
Expected Rate of Return
$2,000
16.00%
3,000
15.00
5,000
13.75
4
2,000
12.50
The company estimates that it can issue debt at a rate of rd
10%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend
of $6.00 per year at $56.00 per share. Also, its common stock currently sells for $43.00 per share; the next expected dividend, D1, is $3.75; and the
dividend is expected to grow at a constant rate of 7% 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
-Select- v
Project 2
-Select- v
Project 3
-Select- v
Project 4
-Select- v
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