Assume the equity beta for Johnson & Johnson (ticker: JNJ) is 0.55. The yield on...
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Assume the equity beta for Johnson & Johnson (ticker: JNJ) is 0.55. The yield on 10-year treasuries is 4%, and you estimate the market risk premium to be 6%. Furthermore, Johnson & Johnson issues dividends at an annual rate of $3.81. Its current stock price is $92.00, and you expect dividends to increase at a constant rate of 4% per year. The market values of the common stock, preferred stock, and debt were $46,240 million, $1350 million, and $16,000 million, respectively. The debt is trading at 90%, with a quarterly coupon payment with a Coupon rate of 13.27% and their corporate taxes are 32%. Assume the maturity is in 10 years. The price of the preferred stock is two dollars less than the common stock, with dividends of $6.00 dollars. The Company intends to invest in a project that will cost 11.1M and will increment the cash flows by 4.5M. Estimate J&Js WACC in two ways, using CAPM and CDGM and determine if they should take the project.
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