Question

Ford Motors is in this situation: EBIT = $ 180 million Tax rate, T = 40%...

Ford Motors is in this situation: EBIT = $ 180 million Tax rate,
T = 40%
Outstanding debt = 100 million
rd = 11.3%
rs = 15.7%
Outstanding shares = 800,000
Book value per share = $ 100
All profits are distributed in dividend form. Debt is made up of perpetual bonds.

1. What is Ford Motor's earnings per share (DFL) and price per share (PO) amount? 2. Calculate Ford Motor's WACC.
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Answer #1
1] EBIT $    180,000,000
Interest on debt [100000000*11.3%] $       11,300,000
EBT $    168,700,000
Tax at 40% $       67,480,000
NI $    101,220,000
EPS = 101220000/800000 = $               126.53
Value of equity = 101220000/15.7% = $    644,713,376
Number of shares 800000
Price per share $               805.89
2] Value of debt $    100,000,000
Value of equity $    644,713,376
Total capital $    744,713,376
Weight of debt 13.43%
Weight of equity 86.57%
WACC = 11.30%*13.43%+15.7%*86.57% = 15.11%
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