Assume Ford Motor Company Is Discussing New Ways to Recapitalize

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%