Question

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 2,000 12.50 The company estimates that it can issue debt at a rate of rd - 11%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $7.00 per year at $49.00 per share. Also, its common stock currently sells for $43.00 per share; the next expected dividend, Ds, is $3.75; and the dividend is expected to grow at a constant rate of 7% per year. The target capital structure consists of 25% common stock, 1596 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.

how do I solve for this?

Answer 1

B C D 1 Cost of debt (pre-tax) 2 0.11 3 0.25 Tax rate Cost of debt (post-tax) C2*(1-C3) 4 5 6 Preferred Dividend 7 7 Value of preferred stock 49 -С6/С7 8 Cost of preferred stock 9 Next year Dividend Price today 10 3.75 11 43 Growth rate 12 0.07 13 Cost of retained earnings =C10/C11+C12 14 15 16 Weight - debt 0.15 17 Weight - preference 0.1 Weight equity 18 0.75 19 20 -C4*C16+C8* C17+C14*C18 WACC 21 22 23 24

A B C D 1 Cost of debt (pre-tax) 2 11% 25% Tax rate Cost of debt (post-tax) 4 8.25% 5 6 Preferred Dividend 7 7 Value of preferred stock 49 8 Cost of preferred stock 14.29% 9 Next year Dividend Price today 10 3.75 11 43 Growth rate 7% 12 13 Cost of retained earnings 14 15.72% 15 Weight debt 16 15% Weight - preference Weight equity 17 10% 18 75% 19 20 14.46% WACC 21 22 23 LC