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.