Business, 21.03.2020 06:03 jumoke26

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
Debt $4,000,000.00 $1,000,000.00 8% 30%
Preferred Stock 1,200,000.00 1,500,000.00 10%
Common Stock 1,000,000.00 3,700,000.00 13%
Total $6,200,000.00 $6,200,000.00

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 Cost of Tax . Weight % Weight% Weighted Cost Weighted Cost capital Rate

Debt 64.52 16.13 8% 30%
Preferred Stock 19.35 24.19 10%
Common Stock 16.13 59.68 13%
Total 100.00 100.00

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