Question

what the description of Financing Costs for Ford motor company. What sources would you reference and access to determine the equity beta, marginal tax rate and cost of debt for you Ford motor company?

Answer 1

financing cost wouldbe cost incurred while raising money. In case of debt, interest paid is cost incurred and in case of equity there is flotation cost. To determine equity beta, we need to find similar companies to ford like volkswagen etc and we need to ungear the equity beta of volkswagen to get to asset beta. And depending on debt-equity mix we need to gear this asset beta to find equity beta for ford. To find marginal tax rate, we need to divide taxes paid by PBT (profit before tax) . To find cost of debt, we need to multiply interest rate by (1-T%), where is T is tax rate. To find cost of debt in whole number, we need to multiply [interest rate x debt taken x (1-T%).].