Assignment:
1. Johnson Industries finances its projects with 40% debt, 10% preferred stock, and 50% common stock.
• The company can issue bonds at a YTM of 8.4%.
• The cost of preferred stock is 9%.
• The risk-free rate is 6.57%.
• The market risk premium is 5%.
• Johnson Industries' beta is equal to 1.3.
• 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%.
2. What is the company's WACC?