Johnson Industries Finances Its Projects with 40 Percent Debt, 10

question 42

Multiple Choice

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) • Assume that the flotation cost on debt and preferred stock is zero, and no new stock will be issued.
• The company's tax rate is 30 percent.
What is the company's weighted average cost of capital (WACC) ?

• A) 8.33%
• B) 9.32%
• C) 9.79%
• D) 9.99%
• E) 13.15%

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