New cost of equity under the new debt-to-equity ratio

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Reference no: EM132067107

1. The spot US$/Euro exchange rate is US$1.2377/Euro. The 3-month forward rate is US$1.2020/Euro. What is Euro's forward premium (or discount) on the US dollar, expressed as an annual rate?

2. Ford Co. has the book equity value of $34,890 million. It also has 3,900 million shares outstanding. The industry average Market-to-Book ratio is 1.36. Based on the given information, what is the expected share price of the stock?

3. A company currently has the debt-to-equity ratio of 1/3. Its cost of debt is 4% before tax and its cost of equity is 12%. Assume that the company is considering raising the debt-to-equity ratio to 1/2. The tax rate is 20%. What is its new cost of equity under the new debt-to-equity ratio? What is its new weighted average cost of capital (WACC) under the new debt-to-equity ratio.

Reference no: EM132067107

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