Ford company-capital budgeting problem

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Reference no: EM132443114

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%?

Ford Company

 

 

 

Market Capitalization

 

Weight

 

 

 

 

 

Equity (E)

 

 

 

 

Preferred (P)

 

 

 

 

Debt (D)

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

Ford Company

 

 

 

 

 

 

 

 

 

Weight

 

Cost

 

After-tax

Marginal Weight

 

 

 

 

 

 

 

Equity (E)

 

 

X

 

=

 

Preferred (P)

 

 

X

 

=

 

Debt (D)

 

 

X

 

=

 

 

 

 

 

 

 

 

Total

 

 

X

 

=

 

Reference no: EM132443114

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