Johnson and Sons' is a renowned brand for tools and equipment

Finance Aug 13, 2020

Johnson and Sons' is a renowned brand for tools and equipment. The company currently finances its operations with $40 million in shares and $10 million in bonds. The required return on shares is 15% and required return on bonds is 6%. Assume that, the company issues $15 million worth of additional bonds at 8%. Using the proceeds from sale of the bonds, Johnson plans to retire $15 million worth of equity. Assuming the WACC remains the same, what will be Johnson's new cost of equity? (Assume zero taxes and perfect capital markets.)
Select one: a. 20.40% 0 b. 14.25% O c. 13.20% O d. 19.20%

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