The market value of Fords' equity, preferred stock, and debt are $6 billion, $2 billion, and $15 billion, respectively. Ford has a beta of 1.5, the market risk premium is 7%, 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 $27 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 30%?
A) 9.56%
B) 8.87%
C) 8.63%
D) 10.13%
Ans: C) 8.63%
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