1-b. Which capital structure shall Mr. Johnson choose to fund the new project? O Scenario 1 O Scenario 2 Part 2 Assume the new project's operating cash flows for the upcoming 5 years are as follows: Project A $-6,200,000.00 1,270,000.00 1,750,000.00 1,980,000.00 2.160,000.0O 2,450,000.00 Initial Outlay Inflow year 1 Inflow year 2 Inflow year 3 Inflow year 4 Inflow year 5 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).) 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%. Cost of Capital 8% Component Scenario 1 Scenario 2 Tax Rate $4,000,000.00 1,200,000.00 1,000,000.00 $6,200,000.00 $1,000,000.00 1,500,000.00 3,700,000.00 $6,200,000.00 Debt 30% Preferred Stock 10% Common Stock 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 2 Weighted Cost Weighted Cost Cost of Capital Scenario 1 Tax Rate Debt 8% 30% Preferred Stock 10% Common Stock 13% Total 0.00% 0.00%
1-b. Which capital structure shall Mr. Johnson choose to fund the new project? O Scenario 1 O Scenario 2 Part 2 Assume the new project's operating cash flows for the upcoming 5 years are as follows: Project A $-6,200,000.00 1,270,000.00 1,750,000.00 1,980,000.00 2.160,000.0O 2,450,000.00 Initial Outlay Inflow year 1 Inflow year 2 Inflow year 3 Inflow year 4 Inflow year 5 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).) 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%. Cost of Capital 8% Component Scenario 1 Scenario 2 Tax Rate $4,000,000.00 1,200,000.00 1,000,000.00 $6,200,000.00 $1,000,000.00 1,500,000.00 3,700,000.00 $6,200,000.00 Debt 30% Preferred Stock 10% Common Stock 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 2 Weighted Cost Weighted Cost Cost of Capital Scenario 1 Tax Rate Debt 8% 30% Preferred Stock 10% Common Stock 13% Total 0.00% 0.00%
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 16PROB
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Question
please see attached
Transcribed Image Text:1-b. Which capital structure shall Mr. Johnson choose to fund the new project?
O Scenario 1
O Scenario 2
Part 2
Assume the new project's operating cash flows for the upcoming 5 years are as follows:
Project A
$-6,200,000.00
1,270,000.00
1,750,000.00
1,980,000.00
2.160,000.0O
2,450,000.00
Initial Outlay
Inflow year 1
Inflow year 2
Inflow year 3
Inflow year 4
Inflow year 5
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).)
Transcribed Image Text: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%.
Cost of Capital
8%
Component
Scenario 1
Scenario 2
Tax Rate
$4,000,000.00
1,200,000.00
1,000,000.00
$6,200,000.00
$1,000,000.00
1,500,000.00
3,700,000.00
$6,200,000.00
Debt
30%
Preferred Stock
10%
Common Stock
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 2
Weighted Cost Weighted Cost Cost of Capital
Scenario 1
Tax Rate
Debt
8%
30%
Preferred Stock
10%
Common Stock
13%
Total
0.00%
0.00%
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