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Problem:

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.
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.

Requirement:

Question: What is the company's weighted average cost of capital (WACC)?

Note: Please provide through step by step calculations.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166918

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