Homework 5 Chapters 10 & 11 SHOW ALL CALCULATIONS. 1. 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 16.00% 1 $2,000 2 15.00 3,000 5,000 3 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of ra 5 10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $5.00 per year at $50.00 per share. Also, its common stock currently sells for $38.00 per share; the next expected dividend, Di, is $4.25, ard the dividend is expected to grow at a constant rate of 5% 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? b. What is Adamson's WACC? c. Only projects with expected returns that exceed WACC will be accepted. 1. Which projects should Adamson accept? 2. What is the cost the cost of each of the capital components? 3. What is Adamson's WACC? 4. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adam son accept? 2. NPV Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 9%. 1. What is the project's NPV? 2. What is the projects IRR? 3. What is the project's MIRRY 1 What is the project's payback