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gogolik [260]
3 years ago
8

The market value of​ Fords' equity, preferred stock and debt are $ 6 ​billion, $ 2 ​billion, and $ 12 ​billion, respectively. Fo

rd has a beta of 1.8​, the market risk premium is 8​%, and the​ risk-free rate of interest is 4​%. ​ Ford's preferred stock pays a dividend of $ 2.50 each year and trades at a price of $ 25 per share. ​ Ford's debt trades with a yield to maturity of 10​%. What is​ Ford's weighted average cost of capital if its tax rate is 40​%?
Business
1 answer:
aniked [119]3 years ago
6 0

Answer:

10.12 %

Explanation:

Weighted Average Cost of Capital (WACC) is the cost of permanent sources of capital pooled together. It shows the risk of the business and is used to evaluate projects.

WACC = Cost of equity x Weight of Equity + Cost of Debt x Weight of Debt + Cost of Preference Stock x Weight of Preference Stock

<u>Remember to use the After tax cost of debt :</u>

After tax cost of debt = Interest x (1 - tax rate)

                                    = 10​% x ( 1 - 0.40)

                                    = 6.00 %

<u>Cost of equity :</u>

Cost of equity = Return from Risk free security + Beta x Risk Premium

                        = 4.00 % + 1.8 x 8.00%

                        = 18.40 %

<u>Cost of Preference Stock :</u>

Cost of Preference Stock  = Dividend / Market return x 100

                                            = $2.50 / $ 25 x 100

                                            = 10%

therefore,

WACC = 18.40 % x 30 % + 6.00 % x 60 % + 10.00% x 10%

           = 10.12 %

thus,

Ford's weighted average cost of capital is 10.12 %

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Answer:  $47 million

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Pension expense arises as a result of the amounts owed to employees in relation to pension liabilities.

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7 0
3 years ago
On January 1, 20X1, Beard Company purchased a machine for $620,000. The machine is expected to have a 10-year life, with no salv
Vinil7 [7]

Answer:

1. Why is this an operating lease for Child Company?

The life of the asset is 10 years while the lease is only 3 years long, so it cannot be classified as a financial lease.

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6 0
2 years ago
A municipal bond carries a coupon rate of 5.45% and is trading at par. What would be the equivalent taxable yield of this bond t
podryga [215]

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7.78%

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Equivalent taxable yield= 5.45%/ 1 - 30% x 100

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4 0
3 years ago
<img src="https://tex.z-dn.net/?f=%283%20%5Csqrt%7B2%20-%209%7D%20%29%283%20%5Csqrt%7B2%20%2B%209%7D%20%29" id="TexFormula1" tit
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(3 \sqrt{2  - 9} )(3 \sqrt{2 + 9} ) \\ 3 \sqrt{2 - 9}   \:  \: \times  \:  \: 3 \sqrt{2 + 9}  \\ 3( \sqrt{2 - 9}  \times  \sqrt{2 + 9} ) \\ 3( \sqrt{(2 - 9)(2 + 9)}  \:  \: )  \\ by \: using \: identity \:  \:  {x}^{2}  -  {y}^{2}  = (x + y)(x - y) \\ 3( \sqrt{ {2}^{2} -  {9}^{2}  } ) \\ 3( \sqrt{4 - 81} ) \\ 3 \sqrt{77}

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7 0
3 years ago
Lori, head of Accounting, refused to sign Brian’s parental leave request. Brian is seeking 12 weeks of paid leave to care for hi
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No,Brain cannot able sue for wrongful termination and prevail for parental leave request

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As per the Family and Medical Leave Act of 1993 requires 12 weeks of unpaid leave annually for the employees who delivered a new born baby. Under this law, legal parents are protected for up to 12 weeks of unpaid leave per year. The act ensures the job security of parents/employees but does not protect employees who go on paid leave with their employers.

The law clearly states that .,only unpaid leave can be taken by the employees as parental leave for 12 weeks. But in this situation Brain ask Lori for paid leave  which is cannot be availed as per law.So Lori has the rights to refuse to sign Brian’s parental leave request.

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