Problem: Johnson Industries provides the following information on the company's common stocks, preferred stocks and bonds:
The company can issue a bond at yield to maturity of 7.85%.
The company pays a dividend on preferred stock of $4.76.
The company just issued a dividend of $5.00 on its common stock. They anticipate that dividends will grow at a constant rate of 5% indefinitely.
The risk-free rate is 6.25%.
The required return on the market is 13.25%.
Johnson's Industries' beta is 1.20.
Preferred stock is currently selling for $68.00.
The company's tax rate is 32%.
The company has 200,000 of $1000 face value bonds currently trading at 98% of par value.
The company has 1.8 million shares of preferred stock outstanding.
The company has 6.8 million shares of common stock outstanding.
Based upon the information provided above, compute the weighted average cost of capital (WACC).