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Problem:

The market value of Fords' equity, preferred stock and debt are $7 billion, $3 billion, and $10 billion, respectively. Ford has a beta of 1.8, the market risk premium is 7%, and the risk-free rate of interest is 4%. Ford's preferred stock pays a dividend of $3.5 each year and trades at a price of $27 per share. Ford's debt trades with a yield to maturity of 9.5%.

Required:

Question: What is Ford's weighted average cost of capital if its tax rate is 30%?

Note: Provide support for your rationale.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91162552

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