Bob Smith, CFO of Smith Construction, Inc. is trying to determine the Weighted Cost of Capital( WACC) based on 2 different capital structures under consideration to fund new project, assume the business's tax rate 30%.

Component Situation #1 Situation #2 Cost of Capital Tax Rate

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

1a) Fill in the chart, determine WACC for each capital structure situations. Use whole percentage rounded; 2 decimal places.

Situation #1 Situation #2 Situation #1 Situation #2 Cost of Capital Tax Rate

Weight % Weight % Weighted Cost Weighted cost

Debt 8% 30%

Preferred Stock 10%

Common Stock 13%

Total

1b) Which capital structure should Mr. Smith pick to fund for the new project?

Situations #1

Situations #2

1CSimulate a new project's operating cash flow for the coming 5 yrs are as:

1C ) What are WACC (from part 1), NPV, IRR &payback yrs of this project?

WACC from (part #1)______________

NPV ________________

IRR ________________

Payback Method _________________