Question

Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent...

Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock.

  • The company can issue bonds at a yield to maturity of 8.4 percent.
  • The cost of preferred stock is 9 percent.
  • The company's common stock currently sells for $30 a share.
  • The company's dividend is currently $2.00 a share (D0 = $2.00), and is expected to grow at a constant rate of 6 percent per year.
  • The company’s tax rate is 30 percent.

What is the company’s weighted average cost of capital (WACC)?

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