Cost of debt | 11% | |||||
Tax rate | 40% | |||||
After-tax cost of debt | =11%*(1-40%) | |||||
The after-tax cost of debt | 6.60% | |||||
Pref dividend | $ 6.00 | |||||
Pref share price | $ 56.00 | |||||
Cost of Pref share | 6/56 | |||||
Cost of Pref share | 10.71% | |||||
Market price per share | $ 31.00 | |||||
Expected dividend | $ 3.75 | |||||
Growth rate | 4% | |||||
Share price= | Expected dividend/(Cost - Growth) | |||||
31= | 3.75/(Cost - 4%) | |||||
Cost - 4%= | 3.75/31 | |||||
Cost - 4%= | 0.120967742 | |||||
Cost= | 16.10% | |||||
Calculation of WACC | ||||||
Cost | Weight | Weighted cost | ||||
A | B | C=A*B | ||||
Debt | 6.60% | 15.00% | 0.99% | |||
Pref capital | 10.71% | 10.00% | 1.07% | |||
Equity | 16.10% | 75.00% | 12.07% | |||
Total WACC | 14.13% | |||||
Project acceptance analysis | ||||||
Project | Cost | Expected return | Cost | Project accpetance | Criteria | |
1 | $ 2,000 | 16.00% | 14.13% | Yes | IF(Expected return > WACC,"Yes","No") | |
2 | $ 3,000 | 15.00% | 14.13% | Yes | IF(Expected return > WACC,"Yes","No") | |
3 | $ 5,000 | 13.75% | 14.13% | No | IF(Expected return > WACC,"Yes","No") | |
4 | $ 2,000 | 12.50% | 14.13% | No | IF(Expected return > WACC,"Yes","No") | |
y: WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following...
Video Excel Online Structured Activity: 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% $2,000 3,000 15.00 WN 5,000 13.75 2,000 12.50 The company estimates that it can issue debt at a rate of ra 11%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $6 per year at $59 per share. Also, its...
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% 2 3,000 15.00 5,000 13.75 2,000 12.50 The company estimates that it can issue debt at a rate of ra = 11%, and its tax rate is 35%. It can issue preferred stock that pays a constant dividend of $6 per year at $57 per share. Also, its common stock currently sells for $31 per share; the...
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 = 11%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $5 per year at $53 per share. Also, its common stock currently sells for $40...
y: 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 $2.000 16.00% 3,000 15.00 13.75 5,000 2,000 12.50 The company estimates that it can issue debt at a rate ofre=11%, and its tax rate is 40%. It can issue preferred stock that pays a constant dividend of $6 per year at $56 per share. Also, its common stock currently sells for $31 per...
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 $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 ofre -10%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $4 per year at $42 per share. Also, its common stock currently sells for $37 per...
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 35%. It can issue preferred stock that pays a constant dividend of $6 per year at $46 per share. Also, its common...
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 35%. It can issue preferred stock that pays a constant dividend of $4 per year at $60 per share. Also, its common...
Problem 10-18 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% $2,000 3,000 15.00 5,000 13.75 2,000 12.50 The company estimates that it can issue debt at a rate of r-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...
Problem 10-18 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 $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 ra = 9%, and its tax rate is 30%. It can issue preferred stock that pays a constant dividend of $6 per year at $40 per share. Also, its common stock currently...
Problem 10-18 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 $2,000 1 16.00% 2 3,000 15.00 3 5,000 13.75 12.50 4 2,000 The company estimates that it can issue debt at a rate of rd10 % , and its tax rate is 30 %. It can issue preferred stock that pays a constant dividend of $4 per year at $49 per share....