Preferred stock and percent common stock

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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 8.5 percent.

· The cost of preferred stock is 7 percent.

· The company's common stock currently sells for $32 a share.

· The company's dividend has just paid $2.00 a share (D0 = $2.00), and is expected to grow at a constant rate of 5 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.

Reference no: EM131489052

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