Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please use excel Johnston Industries finances its projects with 35% debt, 10% preferred stock and 55% common stock. The company can issue bonds at a

please use excel
image text in transcribed
Johnston Industries finances its projects with 35% debt, 10% preferred stock and 55% common stock. The company can issue bonds at a YTM of 8.6%. The cost of preferred stock is 9%. The company's common stock currently sells for $45.43 per share. The current dividend just paid is $3.00 (DO) and is expected to grow at 6% per year indefinitely. Calculate the cost of equity using the dividend growth model. Beta of stock is 1.25: Risk-free rate is 3% and market rate of return is 11% calculate the cost of equity using CAPM. (Overall cost of common equity is the average of the above two calculations using the dividend growth model and CAPM)) The company's tax rate is 25% What is the company's WACC using the cost equity, cost of debt and cost of preferred stock calculated from the above narrative

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Global Finance And The Macroeconomy

Authors: A. Makin

1st Edition

0333736982, 978-0333736982

More Books

Students also viewed these Finance questions

Question

What is the role of the Joint Commission in health care?

Answered: 1 week ago