need 4 questions answered

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My company is Johnson & 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?

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