When you purchase an item in a store, you may be charged _________

Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure h

sergey [27]

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%?

Answer:

7.96%

Explanation:

We can calculate WACC using the formula:

WACC = Cost of equity * Equity %age / 100% +

After Tax Cost of Debt * Debt %age / 100% +

Cost of Preferred Stock * Preferred Stock %age / 100%

Here,

Cost of equity is 17%

Cost of preferred stock is 11%

Post tax cost of debt = Pre-Tax cost * (1 - Tax rate)

This implies,

Post tax cost of debt = 9% * (1 - 40%) = 5.4%

Equity weight is 10% weight in equity

Preferred stock weight is 25%

Debt Weight is 65%

By putting value in the formula given in the attachment, we have:

WACC = 17% * (10% / 100%) + 11% * (25% / 100%) + 5.4% * (65% / 100%)

WACC = 1.7% + 2.75% + 3.51%

WACC = 7.96%

7 0

4 years ago

Larry purchased a leisure lawnmower because the company salesperson intentionally misled him by assuring him that the mower was

dangina [55]

I think Larry could sue for misrepresentation about the true qualities of the lawnmower he was sold.In other words, finding out that his new lawnmower is not self-propelled, does not mulch and only has a 90 day instead of a 5 year warranty he is totally within his rights to sue in small claims court for his money back at least.

7 0

4 years ago

Archer Corp has the following account balances listed in alphabetical order: Accumulated Depreciation, $18,000; Accounts Paya

Setler [38]

Answer:

Equipment, $46,000, and Land, $21,000 including Accumulated Depreciation, $18,000.

This amounts to $49,000.

Explanation:

The long term asset are also known as the non current assets.

These are assets that will not be used up in a year. It means that the benefits that will accrue to the entity as a result of ownership and control of these assets will be for more than a year. Examples are fixed asset, intangible assets etc

Archer's long term assets are Equipment, $46,000, and Land, $21,000 including Accumulated Depreciation, $18,000.

This amounts to

= $46,000 + $21,000 - $18,000

= $49,000

6 0

3 years ago

Which of the following statement completions is CORRECT? If the yield curve is upward sloping, then the marketable securities he

Blizzard [7]

Answer: consist mainly of short-term securities because they pay higher rates.

Explanation:

The yield curve is a curve depicting several yields to maturity or the interest rates across several contract lengths for identical debt contract. The yield curve shows the relationship that exist between the interest rate and time to maturity,

If the yield curve is upward sloping, the marketable securities which are held in a firm's portfolio, and assumed to be held in case of emergencies will consist of short-term securities in order to reduce interest rate risk. As the yield curve is upward sloping, therefore long term securities will be expected to have higher interest rate in the future and therefore a price decline. Because the securities are in case of emergency, it is advisable to have short term securities.

6 0

3 years ago

Revive Co. has outstanding 20-year noncallable bonds with a face value of $1000. These bonds have a current market price of $138

pickupchik [31]

Answer:

5.75%

Explanation:

Firstly, we need to find the yield-to-maturity (YTM) of current outstanding bond as below:

Bond market price = Coupon/(1 + YTM) + Coupon/(1 + YTM)^2 + Coupon/(1 + YTM)^3 +...+ Coupon/(1 + YTM)^20 + Face value/(1 + YTM)^20, or:

1,382.73 = 130/(1 + YTM) + 130/(1 + YTM)^2 + 130/(1 + YTM)^3 +...+ 130/(1 + YTM)^20 + 1,000/(1 + YTM)^20

Solve the equation, we get YTM = 8.85%.

So, if he company wants to issue new debt, its after-tax cost of debt is 8.85% x (1 - 35%) = 5.75%

7 0

4 years ago

When you purchase an item in a store, you may be charged __________.