How do calculations for (Advanced) Homing work?

Gonna plug in this formula because I wonder how Advanced Homing adds damage.

If damage = 5,000 and defense = 1,000

((5,000 x 1.2) -1,000) x 3.8 (Level 30 Cannon) = 19,000
((5,000-1,000) x 1.2) x 3.8 (Level 30 Cannon) = 18,240

Which one is the correct way to calculate the 20% bonus damage?

That one. I had a Corsair friend test this with me earlier. It's a 1.2 multiplier after defense; it works the same way as Berserk (so it multiplies crits by 1.2 as well). It does not add 20% to each hit (like crit).