Problem:
The market value of Ford's equity, preferred stock, and debt are 7billion, 3billion, and 10billion respectively. Ford has a beta of 1.8, 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%?
a. 10.12
b. 10.34
c. 11.08
d. 11.47
e. 11.83
Note: Provide support for your rationale.