Assume Ford Motor Company Is Discussing New Ways to Recapitalize

question 21

Multiple Choice

Assume Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a 25% weight in equity, 10% in preferred stock, and 65% in debt. The cost of equity capital is 13%, the cost of preferred stock is 9%, and the pretax cost of debt is 8%. What is the weighted average cost of capital for Ford if its marginal tax rate is 40%?

• A) 6.91%
• B) 7.27%
• C) 8.00%
• D) 8.36%

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Definitions:

Economic Espionage Act

An act that makes it a federal crime to steal trade secrets or to receive or possess trade secrets known to be stolen.

Criminal Penalties

Sanctions imposed for violations of criminal law, which may include imprisonment, fines, or other forms of punishment.

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A sign, term, or expression that has been legally recognized or adopted through usage to symbolize a corporation or merchandise.

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