Problem: Corporation is evaluating the following four independent, investment opportunities:
Project A, Cost $300,000, Rate of return 14%
Project B, Cost $150,000, Rate of return 10%
Project C, Cost $200,000, Rate of return 13%
Project D, Cost $400,000, Rate of return 11%
Jackson's target capital structure is 60 percent debt and 40 percent equity. The yield to maturity on the company's debt is 10 percent. Jackson will incur floatation costs for a new equity insurance of 12 percent. The growth rate is a constant 6 percent. The stock price is currently $35 per share for each of the 10,000 shares outstanding. Jackson expects to earn net income of $100,000 this coming year and the dividend payout ratio will be 50 percent. If the company's tax rate is 30 percent, which of the projects will be accepted?