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 10% weight in equity, 20% in preferred stock, and 70% in debt. The cost of equity capital is 16%, the cost of preferred stock is 10%, 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) 6.61%
B) 6.96%
C) 7.31%
D) 7.66%