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 companys tax rate is 30%. Component Scenario 1 Scenario 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 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).) 1-b. Which capital structure shall Mr. Johnson choose to fund the new project? Scenario 1 Scenario 2

Part 2 Assume the new projects 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).) 2-b. Shall the company accept or reject this project based on the outcome using the net present value (NPV) method? Project A should be accepted Project A should be rejected