Business, 31.10.2021 03:10 solizpaco7124

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
3 5,000 13.75
4 2,000 12.50
The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $6 per year at $59 per share. Also, its common stock currently sells for $40 per share; the next expected dividend, D1, is $4.00; 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? Round your answers to two decimal places. Do not round your intermediate calculations.
Cost of debt
5.40
%
Cost of preferred stock
10
%
Cost of retained earnings
%

What is Adamson's WACC? Round your answer to two decimal places. Do not round your intermediate calculations.
%

Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?
Project 1
-Select-
Project 2
-Select-
Project 3
-Select-
Project 4
-Select-

Answers: 1

Show answers

Another question on Business

Business, 21.06.2019 19:40

Uppose stanley's office supply purchases 50,000 boxes of pens every year. ordering costs are $100 per order and carrying costs are $0.40 per box. moreover, management has determined that the eoq is 5,000 boxes. the vendor now offers a quantity discount of $0.20 per box if the company buys pens in order sizes of 10,000 boxes. determine the before-tax benefit or loss of accepting the quantity discount. (assume the carrying cost remains at $0.40 per box whether or not the discount is taken.)

Answers: 1

Answer

Business, 21.06.2019 23:30

Afreelanceâ€‹ singer-songwriter is planning the restoration of a recently purchased civilâ€‹ war-era farmhouse. while he professes an enjoymentâ€‹ of, and talent in the constructionâ€‹ trades, the theory of comparative advantage implies that a. the value of what he importsâ€‹ (in thisâ€‹ case, professional contractorâ€‹ services) must equal the value of what he exportsâ€‹ (songs). b. he should concentrate on the restoration work since hisâ€‹ out-of-pocket costs will be much lower than if he hires professionals. c. â€‹self-sufficiency isâ€‹ advantageous, hence he should split his time between music and construction. d. the income lost while away from music will likely exceed the savings realized by doing the workâ€‹ himself, thus, he should hire professionals to do the restoration work. e. he ought to do as much of the work himself as possible since importsâ€‹ (in thisâ€‹ case, professional contractorâ€‹ services) should always be restricted to those things that cannot be done internall

Answers: 2

Answer

Business, 22.06.2019 05:10

1. the political environment in india has proven to be critical to company performance for both pepsico and coca-cola india. what specific aspects of the political environment have played key roles? could these effects have been anticipated prior to market entry? if not, could developments in the political arena have been handled better by each company? 2. timing of entry into the indian market brought different results for pepsico and coca-cola india. what benefits or disadvantages accrued as a result of earlier or later market entry? 3. the indian market is enormous in terms of population and geography. how have the two companies responded to the sheer scale of operations in india in terms of product policies, promotional activities, pricing policies, and distribution arrangements? 4. “global localization” (glocalization) is a policy that both companies have implemented successfully. give examples for each company from the case.

Answers: 1

Answer

Business, 22.06.2019 07:30

Select the correct answer the smith family adopted a child. the adoption procedure took about three months, and the family incurred various expenses. will the smiths receive and financial benefit for the taxable year? a) they will not receive any financial benefit for adopting the child b) their income tax component will decrease c) they will receive childcare grants d) they will receive a tax credit for the cost borne for adopting the child e) they will receive several tax deductions

Answers: 3

Answer

You know the right answer?

WACC AND OPTIMAL CAPITAL BUDGET Adamson Corporation is considering four average-risk projects with...

Questions