Assume the market value of Fords' equity, preferred stock and debt are $7 billion, $4 billion...

60.1K

Verified Solution

Question

Finance

Assume the market value of Fords' equity, preferred stock anddebt are $7 billion, $4 billion and $10 billion respectively. Fordhas a beta of 1.4, the market risk premium is 6% and the risk-freerate of interest is 4%. Ford's preferred stock pays a dividend of$3 each year and trades at a price of $25 per share. Ford's debttrades with a yield to maturity of 8.5%. What is Ford's weightedaverage cost of capital if its tax rate is 35%?
A) 8.60%
B) 7.69%
C) 8.15%
D) 9.05% <-- Correct answer
Please show me step by step how to do this problem, please.

Answer & Explanation Solved by verified expert

4.2 Ratings (642 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Assume the market value of Fords' equity, preferred stock anddebt are $7 billion, $4 billion and $10 billion respectively. Fordhas a beta of 1.4, the market risk premium is 6% and the risk-freerate of interest is 4%. Ford's preferred stock pays a dividend of$3 each year and trades at a price of $25 per share. Ford's debttrades with a yield to maturity of 8.5%. What is Ford's weightedaverage cost of capital if its tax rate is 35%?A) 8.60%B) 7.69%C) 8.15%D) 9.05% <-- Correct answerPlease show me step by step how to do this problem, please.