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defon
3 years ago
8

Calculating ABC Unit Costs

Business
1 answer:
Makovka662 [10]3 years ago
8 0

Answer:

Unit cost for Classic $ 20.88

Unit cost for Gold $8.32

Explanation:

The computation of the unit cost for Classic and the Gold is shown below:

For Classic

= (12,000 × $0.20 + 12,000 × $0.95 + 24,000 × $4 + 48,000 × $1.50) ÷ (5,200 holders)

= ($2,400 + $11,400 + $22,800 + $72,000) ÷ (5,200 holders)

= ($108,600) ÷ (5,200 holders)

= $20.88

For Gold

= (7,200 × $0.20 + 7,200 × $0.95 + 36,000 × $4 + 14,400 × $1.50) ÷ (20,900 holders)

= ($1,440 + $6,840 + $144,000 + $21,600) ÷ (20,900 holders)

= ($173,880) ÷ (20,900 holders)

= $8.32

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Complete Question:

Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a 10% weight in equity, 25% in preferred stock, and 65% in debt. The cost of equity capital is 17%, the cost of preferred stock is 11%, and the pretax cost of debt is 9%. What is the weighted average cost of capital for Ford if its marginal tax rate is 40%?

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