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 7.4 percent.
· The cost of preferred stock is 7 percent.
· The company's common stock currently sells for $35 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.