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krok68 [10]
3 years ago
15

Adamson Corporation is considering four average-risk projects with the following costs and rates of return:

Business
1 answer:
Jlenok [28]3 years ago
7 0

Answer:

a. Cost of debt = Interest * (1 - Tax rate)

= 10%*(1 - 0.30)

= 7%

Cost of preferred stock = Dividend/ Issue price

= 5/48

= 10.42%

Cost of common stock (Cost of retained earnings) = (D1/P0) + g

= (4/33) + 0.07

= 0.12 + 0.07

= 0.19

= 19%

b. Fund                         Cost        Weight       Cost * Weight

Debt                           7%          0.15                 1.05%

Preferred stock        10.42%     0.10                1.042%

Retained earnings     19%         0.75               <u>14.25%</u>

WACC                                                               <u>16.342%</u>

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5 0
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Answer:

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