Question: I need some help calculating the WACC because i cannot seem to figure out the cost of equity. Part 1 Peter Johnson, the CFO of

I need some help calculating the WACC because i cannot seem to figure out the cost of equity.

I need some help calculating the WACC because iI need some help calculating the WACC because i
Part 1 Peter Johnson, the CFO of Homer Industries, Inc is trying to determine the Weighted Cost of Capital (WACC) based on two different capital structures under consideration to fund a new project. Assume the company's tax rate is 30%. Component Scenario 1 Scenario 2 Cost of Capital Tax Rate 90 points Debt $5,000,000.00 $2,000,000.00 8% 30% Preferred Stock 1,200,000.00 2,200,000.00 10% Common Stock 1,800,000.00 3,800,000.00 13% Total $8,000,000.00 $8,000,000.00 1-a. Complete the table below to determine the WACC for each of the two capital structure scenarios. (Enter your answer as a whole percentage rounded to 2 decimal places (e.g. .3555 should be entered as 35.55).) Scenario 1 Scenario 2 Scenario 1 Scenario 2 Weighted Cost | Weighted Cost Cost of Capital Tax Rate Weight % Weight % Debt 2.50% 25.00% 8% 30%% Preferred Stock 15.00% 27.50% 10% Common Stock 22.50% 7.50% 13% Total 100.00% 100.00% 1-b. Which capital structure shall Mr. Johnson choose to fund the new project? Scenario 1 O Scenario 2Part 2 Assume the new project's operating cash flows for the upcoming 5 years are as follows: Project A Initial Outlay $ -8,000,000.00 Inflow year 1 1,020,000.00 Inflow year 2 1,850,000.00 Inflow year 3 1,960,000.00 Inflow year 4 2,370,000.00 Inflow year 5 2,550,000.00 WACC 2-a. What are the WACC (restated from Part 1), NPV, IRR, and payback years of this project? (Negative values should be entered with a minus sign. All answers should be entered rounded to 2 decimal places. Your answers for WACC and IRR should be whole percentages (e.g. .3555 should be entered as 35.55).) WACC (from Part 1) NPV IRR Payback Method 2-b. Shall the company accept or reject this project based on the outcome using the net present value (NPV) method? O Project A should be accepted O Project A should be rejected

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!