1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
lora16 [44]
3 years ago
13

The market value of​ Fords' equity, preferred​ stock, and debt are $ 7 ​billion, $ 2 ​billion, and $ 13 ​billion, respectively.

Ford has a beta of 1.6​, the market risk premium is 8​%, and the​ risk-free rate of interest is 3​%. ​ Ford's preferred stock pays a dividend of $ 2 each year and trades at a price of $ 26 per share. ​ Ford's debt trades with a yield to maturity of 8​%. What is​ Ford's weighted average cost of capital if its tax rate is 30​%?
Business
1 answer:
steposvetlana [31]3 years ago
7 0

Answer:

WACC is 9%

Explanation:

WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs.

According to WACC formula

WACC = ( Cost of equity x Weightage of equity ) + ( Cost of debt ( 1- t) x Weightage of debt ) + ( Cost of Preferred equity x Weightage of Preferred equity )

As per given data

Market Values

Equity = $7 ​billion,

Preferred​ stock = $2 ​billion

Debt = $13 ​billion

Cost

Equity

Capital asset pricing model measure the expected return on an asset or investment. it is considered as the cost of common stock.

Formula for CAPM

Cost of Equity = Risk free rate + beta ( market return - risk free rate )

Cost of Equity = Rf + β ( Mrp )

Cost of Equity = 3% + 1.6 ( 8% ) = 15.8%

Preferred​ stock = $2 / $26 = 0.077 = 7.7%

Debt = 8%

Placing values in the formula

WACC = ( 15.8% x $7 billion / $22 billion ) + ( 8% ( 1- 0.3) x $13 billion / $22 billion ) + ( 7.7% x $2 billion / $22 billion )

WACC = 5.03% + 3.31% + 0.7% = 9.04%

You might be interested in
Swifty Corporation acquired 18200 shares of its own common stock at $21 per share on February 5, 2020, and sold 9100 of these sh
dybincka [34]

Answer:

the journal entry to record the purchase of treasury stocks

February 5, 2020

Dr Treasury stocks 382,200

    Cr Cash 382,200

the journal entry to record the sale of 9,100 stocks

August 9, 2021

Dr Cash 254,800

    Cr Treasury stock 191,100

    Cr Additional paid in capital 63,700

7 0
2 years ago
All of the following are basic requirements for a fulfilling career except:
zheka24 [161]

Answer:

Continual overtime

Explanation:

5 0
3 years ago
Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $11.90, but management expects to reduce the p
GrogVix [38]

Answer:

The price of the stock is $66.5

Explanation:

The constant growth model of the DDM approach will be used to calculate the price of such a stock today.

The formula for the constant growth model is,

P0 or V = D0*(1+g) / r - g

As the growth rate in the company's dividedn is negative, the growth rate will be -5%.

The price of the stock is,

P0 = 11.9 * ( 1 - 0.05) / 0.12 + 0.05

P0 = $66.5

6 0
3 years ago
50 points. Ethics are essential in good accounting. For this assignment, find examples of poor ethical behavior in accounting an
Alexxandr [17]

Answer:

Ethics of accounting information is providing accounting information to make good economic decisions in the financial statement of the organization.

Explanation:

8 0
3 years ago
"a typical group is selected from the population, and a random sample is taken from within the group. this is an example of" ___
torisob [31]
If the people conducting said experiment specifically wanted to select a random group of typical people it could be considered stratified. if they specified that they wanted any group of typical people then it would be simple random. Just looking at the supplied info, i'm pretty sure it's simple random.
3 0
3 years ago
Other questions:
  • What habit should you follow to avoid the risk of contracting illnesses and infections
    8·1 answer
  • What is the price at which a dealer will sell a bond?
    8·1 answer
  • The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 28, 2010. On
    15·1 answer
  • As a financial advisor, what will you tell your client, Ryan, he should be willing to pay for an investment property that he pla
    7·1 answer
  • Describe three ways that globalization is having a negative impact on the environment
    7·1 answer
  • Which of the following is a good condition for bottom-up estimating? A. When the project involves strategic decision making B. W
    13·2 answers
  • Kroger, a supermarket chain, has committed to source 100 percent of wild-caught seafood in its seafood departments from fisherie
    5·1 answer
  • Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. an american tourist in germany is buying a produ
    13·2 answers
  • Giving away points <br> Come quick
    5·2 answers
  • Consider a process consisting of three resources. Assume there exists unlimited demand for the product, and that all activities
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!