Assume Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a 30% weight in equity, 15% in preferred stock, and 55% in debt. The cost of equity capital is 16%, the cost of preferred stock is 11%, 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

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A) r_wacc = r_EE% + r_D (1 - T_c) D% + r_pfdP% r_wacc = 0.3 × 0.16 + 0.55 × 0.08 × (1 - 0.4) + 0.15 × 0.11 = 0.0909 = 9.09%

Assume Ford Motor Company Is Discussing New Ways to Recapitalize