Financial Management
Ford Company
Capital Budgeting Problem
The market value of Fords' equity, preferred stock and debt are $7 billion, $3 billion, and $10 billion, respectively. Ford has a beta of 1.8, the market risk premium is 7%, and the risk-free rate of interest is 4%. Ford's preferred stock pays a dividend of $3.5 each year and trades at a price of $27 per share. Ford's debt trades with a yield to maturity of 9.5%. What is Ford's weighted average cost of capital if its tax rate is 30%?
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Ford Company
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Market Capitalization
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Weight
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Equity (E)
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Preferred (P)
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Debt (D)
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Total
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Ford Company
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Weight
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Cost
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After-tax Marginal Weight
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Equity (E)
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X
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=
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Preferred (P)
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X
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=
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Debt (D)
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X
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=
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Total
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X
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=
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