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Johnson Company’s stock price is $25 per share and it has 4 million shares

01 / 10 / 2021 Projects

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Johnson Company’s stock price is $25 per share and it has 4 million shares

g. Johnson Company’s stock price is $25 per share and it has 4 million shares outstanding. Johnson Company has 70,000 10% annual coupon bonds with a par value of $1,000 each. The maturity of the bonds is 10 years and the YTM is 10.843%. The expected market return, rm, is 16% and Johnson’s stock beta, ?S, is 1.4. The risk-free rate of interest, rf, is 7% and the corporate tax rate, tc, is 34%.1. Calculate the bond-to-stock ratio of Johnson Company.2. Calculate the Johnson Company’s weighted average cost of capital, rwacc.3. Johnson Company plans to invest $100 millions in a new soccer ball machine that produces an unlevered pre-tax cash flow of $25 million in perpetuity? The risk of the project is similar to Johnson’s overall risk. Should Johnson Company invest in the new machine?



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