See attachment

_{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}

_{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}

_{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).)}

_{Scenario1 WT % S2 WT %S 1 WT COST S 2 WT COST COST CAPITAL TAXRATE}

_Debt

_{Preferred Stock}

_{Common Stock}

_Total

_{1-b. Which capital structure shall Mr. Johnson choose to fund the new project?}

• _{Scenario 1}
• _{Scenario 2}

_{Part 2}

_{Assume the new project's operating cash flows for the upcoming 5 years are as follows:}

_{Project A}

_{Initial Outlay $ -6,200,000.00}

_{Inflow year 1 1,270,000.00}

_{Inflow year 2 1,750,000.00}

_{Inflow year 3 1,980,000.00}

_{Inflow year 42,160,000.00}

_{Inflow year 5}