Question

Assume the market value of Fords' ordinary equity, preference share, and debt are $6 billion, $2 billion, and $13 billion, respectively. Ford’s equity has a beta of 1.7, the market risk premium is 8%, and the risk-free rate of interest is 3%. Ford's preference share pays a dividend of $4 each year and trades at a price of $30 per share. Ford's debt trades with a yield to maturity of 8.0%. What is Ford's weighted average cost of capital if its tax rate is 30%?

Answer #1

**I have answered the question below**

**Please up vote for the same and thanks!!!**

**Do reach out in the comments for any
queries**

**Answer:**

6 billion + 2 billion + 13 billion = 21 billion

Re-> cost of equity= Risk free rate + equity rate * market risk premium

Re= .03+(1.7*0.08)= 0.166R

pfd-> cost of preferred stock= Dividend/stock price

Rpfd= 4/30= .1333

D%= 13billion/21billion= .619

E%= 6billion/21billion= .286

P%= 2 billion/21billion= .095

Rd=debt capital comes from yield to maturity of 8% (YTM is an estimate of debt capital)

Tc= 30%

Rwacc=(w/ preferred stock)= Re*E%+Rpfd*P%+Rd(1-Tc)D%

Rwacc=(.166)(.286)+(.1333)(.095)+(0.08)(1-(.3))(.619)= .094803
ie **9.48%**

Assume the market value of Fords' equity, preferred stock and
debt are $7 billion, $4 billion and $10 billion respectively. Ford
has a beta of 1.4, the market risk premium is 6% and the risk-free
rate of interest is 4%. Ford's preferred stock pays a dividend of
$3 each year and trades at a price of $25 per share. Ford's debt
trades with a yield to maturity of 8.5%. What is Ford's weighted
average cost of capital if its tax...

The market value of Fords' equity, preferred stock, and debt
are $ 7 billion, $ 3 billion, and $ 11 billion, respectively.
Ford has a beta of 1.4, the market risk premium is 8%, and the
risk-free rate of interest is 4%. Ford's preferred stock pays a
dividend of $ 3 each year and trades at a price of $ 28 per share.
Ford's debt trades with a yield to maturity of 7.5%.
What is Ford's weighted average...

The market value of Fords' equity, preferred stock, and debt
are
$ 8$8
billion,
$ 1$1
billion, and
$ 15$15
billion, respectively. Ford has a beta of
1.31.3,
the market risk premium is
88%,
and the risk-free rate of interest is
44%.
Ford's preferred stock pays a dividend of
$ 3$3
each year and trades at a price of
$ 28$28
per share. Ford's debt trades with a yield to maturity of
8.58.5%.
What is Ford's weighted average...

Assume the market
value of a firm's preferred stock, equity, and debt are$2 billion,
$6 billion, and $13 billion, respectively. The firm has a beta of
1.7, the market return is 11%, and the risk-free rate of interest
is 3%. The firm's preferred stock pays a dividend of $4 each year
and trades at a price of $30 per share. The firm's debt trades with
a yield to maturity of 8.0%. What is the firm's weighted average
cost of capital...

The market value of Ford’s debt, preferred stock and equity are
$1.5 billion, $1 billion, and $6 billion, respectively. Ford has a
beta of 1.5, the market risk premium is 8%, and the risk-free rate
of interest is 4%. Ford’s preferred stock pays a dividend of $3.50
each year and trades at a price of $30 per share. Ford’s debt
trades with a yield to maturity of 9.5%. What is Ford’s WACC if its
tax rate is 21%?
13.27%
13.99%...

Assume the market value of Exxon Mobil’s equity, preferred
stock, and debt are $10 million, $6 million, and $14 million,
respectively. The preferred stock outstanding pays a 9% annual
dividend and has a par value of $100. The common stock currently
has a beta of 1.15, the preferred stock currently sells for $80 per
share, and the 10% semiannual bonds have 17 years to maturity and
sell for 91% of par. The market risk premium is 11.5%, T-bills are
yielding...

Power Financial Corp has a current share price of $30, and a
market capitalization of $20 billion. The firm's beta is 0.93,
the risk-free rate is 3.2%, and the market risk premium is 7%.
The firm has $12 billion of debt with a yield to maturity of 5%.
If the firm's tax rate is 20%, what is Power Financial's
WACC?

Assume Apple shares have a market capitalization of $50 billion.
The company just paid a dividend of $0.25 per share and each share
trades for $12. The growth rate in dividends is expected to be 4%
per year. Also, Apple has $20 billion of debt that trades with a
yield to maturity of 6%. If the firm's tax rate is 40%, compute the
WACC?
Please explain how to find the cost of equity with the steps

The BHP Corporation has debt with a market value of $55 million,
preferred stock worth $3 million outstanding, and common equity
with a market value of $42 million. The company’s debt yields 9.5
percent. Its preferred stock pays $6.5 per share fixed dividend and
is currently priced at $50 per share. The company’s common stock
has a beta of 0.90, the risk-free rate is 4 percent and the market
risk premium is 8 percent. Given that BHP Corporation faces 30...

Luna Corporation has a beta of 1.5, £10 billion in equity, and
£5 billion in debt with an interest rate of 4%. Assume a risk-free
rate of 0.5% and a market risk premium of 6%. Calculate the WACC
without tax.
Queen Corporation has a debt-to-equity ratio of 1.8. If it had
no debt, its cost of equity would be 16%. Its current cost of debt
is 10%. What is the cost of equity for the firm if the corporate
tax...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 25 minutes ago

asked 33 minutes ago

asked 33 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago