You Are Provided With The Following Information To Determine Forda 1s Weighted Avera 1205905

You are provided with the following information to determineFordA????1s weighted average cost of capital that will be used forcapital project calculations. As a Finance Analyst for Ford, youwill calculate and support the development of its weighted averagecost of capital and communicate it to the CFO of Ford. After youhave calculated the required data points in the two tables below,provide a brief paper (approximately 200 to 300 words) to the CFOsummarizing the weighted average cost of capital you determined forFord, where they may be risks in the calculation (how thecalculation may change over time), how the weighted average cost ofcapital you calculated should be applied when making cost ofcapital project decisions, and some scenarios that the CFO shouldbe aware of that may change the weighted average cost of capital atsome future point.

Financial Management

Ford Company

Capital Budgeting Problem

The market value of Fords’ equity, preferred stock and debt are$7 billion, $3 billion, and $10 billion, respectively. Ford has abeta of 1.8, the market risk premium is 7%, and the risk-free rateof interest is 4%. Ford’s preferred stock pays a dividend of $3.5each year and trades at a price of $27 per share. Ford’s debttrades with a yield to maturity of 9.5%. What is Ford’s weightedaverage cost of capital if its tax rate is 30%?

Ford Company

Market Capitalization

Weight

Equity (E)

Preferred (P)

Debt (D)

Total

Ford Company

Weight

Cost

After-tax

Marginal Weight

Equity (E)

X

=

Preferred (P)

X

=

Debt (D)

X

=

Total

X

=

Prof. Angela

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