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1-b. Which capital structure shall Mr. Johnson choose to fund the new project? multiple choice...

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Finance

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

multiple choice 1

  • Scenario 1

  • Scenario 2

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2-b. Shall the company accept or reject this project based on the outcome using the net present value (NPV) method?

multiple choice 2

  • Project A should be accepted

  • Project A should be rejected

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%. Tax Rate 30% Component Debt Preferred Stock Common Stock Total Scenario 1 $5,000,000.00 1,200,000.00 1,800,000.00 $8,000,000.00 Scenario 2 $2,000,000.00 2,200,000.00 3.800.000.00 $8,000,000.00 Cost of Capital 8% 10% 13% 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 % Tax Rate Debt Scenario 1 Scenario 2 Weighted Cost Weighted Cost Cost of Capital 8% 10% 13% 30% Preferred Stock Common Stock Total

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