Business : Ford Problem 2

Ford CompanyMarketCapitalizationWeightEquityPreferredDebt7310351550Total20100Ford CompanyWeightCostEquityPreferredDebt351550XXXTotal100X16.612.966.65Stepsa) Cost of Equity = Risk free rate + (Rm-Risk free rate)*BetaCost of Equity = 4+ 7*1.8Cost of Equity = 16.6b) Cost of Preferred Stock = 3.5/27*100Cost of Preferred Stock = 12.96c) Cost of Debt before tax= 9.5 %After Tax Cost of Debt = 9.5*(1-30%)After Tax Cost of Debt = 6.65Market Value of Equity = 7 MMarket value of Preferred Stock = 3 MAfter-taxMarginalWeight===5.811.9443.325=11.079%Market Value of Debt =10 MTotal Market Value = 10 + 7+3 = $ 20 MWeight of Common Stock = 7/20*100 = 35%Weight of Preferred Stock = 3/20*100 = 15%Weight of Debt = 10/20*100 = 50%WACC = (e/v)*Re+{( d/v)*Rd)(1-t)}WHERE e=Market value of the companys equityd=Market value ...


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