Final answer:
The question is related to determining the Weighted Cost of Capital (WACC) for Homer Industries, Inc, which is critical for evaluating different capital structures to fund new projects, while accounting for tax implications and societal returns on investment.
Step-by-step explanation:
The question concerns determining the Weighted Cost of Capital (WACC) for Homer Industries, Inc, where the CFO, Peter Johnson, is evaluating two different capital structures to fund a new project. WACC is critical as it represents the average rate of return the company is expected to pay its security holders to finance its assets. It is a foundational concept in corporate finance used to evaluate investment projects.
According to the provided details, the student should consider the impact of Homer Industries' capital cost and returns influenced by societal benefits on their investment decisions. Notably, if the firm's interest rate is 9% and it can capture a 5% return to society, the effective rate of return for Homer Industries would appear to be reduced to 4%, and thus the firm might decide to invest $183 million in the new project. The details provided about the investment amounts and returns are key in calculating WACC and making investment decisions. The provided information also implies that tax considerations, specifically a 30% tax rate, need to be taken into account when calculating the cost of capital.