Question
Johnson Industries finances its projects with 40 % debt, 10% preferred stock, and 50% common stock. The company can issue bonds at a YTM of
Johnson Industries finances its projects with 40 % debt, 10% preferred stock, and 50% common stock.
The company can issue bonds at a YTM of 8.0%.
The cost of preferred stock is 9.0%.
The risk-free rate is 6.0%.
The market risk premium is 5.0 %.
Johnson Industries' beta is equal to 1.2.
Assume that the firm will be able to use retained earnings to fund the equity portion of its capital budget.
The company's tax rate is 30%.
What is the company's WACC?
a. 8.33 % b. 8.95 % c. 9.14% d. 10.92 % e. 13.15%
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Investment Management
Authors: Stephen Lofthouse
2nd Edition
047149237X, 9780471492375
