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 $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).)