Assume the market value of Fords' equity, preferred stock and debt are $7 billion, $4 billion and $10 billion respectively. Ford has a beta of 1.4, the market risk premium is 6% and the risk-free rate of interest is 4%. Ford's preferred stock pays a dividend of $3 each year and trades at a price of $25 per share. Ford's debt trades with a yield to maturity of 8.5%. What is Ford's weighted average cost of capital if its tax rate is 35%

WACC = 9.1%

Explanation:

The weighted Average cost of Capital(WACC) is the average cost of capital for the different sources of long-term capital available to a firm weighted according to the proportion each source of finance bears to the total capital in the pool.

cost of equity = Rf+ β×(Rm-Rf)

(Rm-Rf)= 6%, Rf- 4%, β- 1.4

=4% + (1.4×6%) = 12.4

Cost of preferred share = Dividend/price

                                      = 3/25× 100= 12.0%

After tax cost of debt = Yield × (1-Tax rate) = 8.5%× (1-0.35)=5.53%

Type          cost            Market value       Cost × Market Value

Equity        12.4%              7                          0.868

Preferred   12%                4                          0.48

Bond       5.53%               10                       0.553

Total                                21                          1.901

WACC =  1.901 /21 × 100 =9.1%

WACC = 9.1%

the answer is "b.the increased supply will create a surplus. "

the essential thought behind price controls is straightforward - utilize the power of law to modify the equilibrium of a market. for instance, the legislature may choose that the steel business needs to survive, and in this way pass a law to set a value floor on steel. this implies all steel sold must offer at or over the floor value, which must be set over the equilibrium cost for it to have any impact. the switch could likewise happen - the administration can choose that steel is excessively costly and set a value roof underneath its equilibrium value, with the goal that all steel must be sold at or beneath that ceiling.