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:

Lumbar

Pertaining to the lower part of the back or the five vertebrae in the lower spine.

Cervical

Pertaining to the neck or cervix in the human body.

Atlas

The first cervical vertebra of the spine, supporting the skull and enabling head movements.

Axis

The second cervical vertebra (C2) of the spine, which allows the head to rotate.