Assume Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a 25% weight in equity, 10% in preferred stock, and 65% in debt. The cost of equity capital is 13%, the cost of preferred stock is 9%, and the pretax cost of debt is 8%. What is the weighted average cost of capital for Ford if its marginal tax rate is 40%?

Question

Quizplus · Accepted Answer

B) r_wacc = r_EE% + r_D (1 - T_c) D% + r_pfdP% r_wacc = 0.25 × 0.13 + 0.65 × 0.08 × (1 - 0.4) + 0.1 × 0.09 = 0.0727 = 7.27%

Assume Ford Motor Company Is Discussing New Ways to Recapitalize