Company is Ford (F)

Compute the WACC under each of the three scenarios. Make sure that you use multiple methods to calculate the cost of equity (i.e., CAPM and DDM) and discuss how you came up with the final cost of equity.

1) Use the WACC of your company that you chose using the current market weights as the optimal capital structure.

2) Assume that the current capital structure is not optimal but a target capital structure using 35 percent debt is optimal.

3) Assume that there is a question about your use of the patented process concerning Widget production and there is the possibility of litigation if you produce the Widget. Your professor estimates that a risk premium of an additional 2 percent should be sufficient to cover the litigation risk.