Reference no: EM132419890

Ford Motor Company finances its operations with 35 percent debt, 20 percent preferred stock, and 45 percent common stock. The interest rate on the company's debt is 11 percent. The preferred stock pays an annual dividend of $2 and sells for $20 a share. The company's common stock trades at $30 a share, and its current dividend of $2 a share is expected to grow at a constant rate of 8 percent per year. The flotation cost on common stock is 15 percent of the dollar amount issued, while the flotation cost on preferred stock is 10 percent. The company estimates that its weighted average cost of capital is 12.25 percent. Assume that the firm will not have enough retained earnings to fund the equity portion of its capital budget. What is the company's tax rate?