Johnson & Johnson Questions

timer Asked: Feb 20th, 2019
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Question Description

My company is Johnson & Johnson.

  1. Create excel and estimate Johnson and Johnson’s approximate cost of capital, (Use both market and book weights, for book versus market value weights see page 394 of your textbook-see attached).
[Hint: You need to estimate the cost of debt or Kd, you have done it in previous DB) and then estimate the cost of equity, Ks, again you have done it in previous DB].
If there is no preferred stock than Cost of capital = Wd * Kd (1-t)+ Ws* Ks.
If PS then, Cost of capital = Wd * Kd (1-t)+ Ws* Ks + Wps *Kps
Wd = total long-term debt/TA, Ws = Total Equity/TA, Wps= Total PS/TA
2. If your Johnson and Johnson uses its cost of capital for all projects, do you think the firm becomes riskier or less risky? (discuss).

Capital Budgeting
Please answer the following questions.
3. Define the term operating leverage.
4. What reinvestment rate assumptions are associated with the NPV and IRR?

 Johnson & Johnson Questions

Tutor Answer

School: UIUC

Please find answer.Kindly extend the time tomorrow as the system will detect the work as overdue.Thank you.

Running head: WACC


University Name
Feb 23, 2019



Q1.The WACC of Johnson and Johnson was found to be 5.13%
Q2.If Johnson and Johnson use its cost of capital for all projects, then the firm will become
riskier. If any project is much riskier than what the firm is and the firm uses its cost of capital
for evaluating the project it leads to a situation where the company...

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Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

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