Part 1 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 Debt Cost of Capital 8% Scenario 1 Scenario 2 Tax Rate $5,000,000.00 1,200,000.00 1,800,000.00 $8,000,000.00 $2,000,000.00 2,200,000.00 3,800,000.00 $8,000,000.00 30% Preferred Stock Common Stock 10% 13% Total 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 Weight % Scenario 2 Weight % Scenario 1 Weighted Cost Weighted Cost Cost of Capital Scenario 2 Tax Rate Debt 8% 30% Preferred Stock 10% Common Stock 13% Total 1-b. Which capital structure shall Mr. Johnson choose to fund the new project? O Scenario 1. O Scenario 2
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
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