7 You used Ryanair as a representative company to estimate the cost of capital for MA. What are some of the potential problems with this approach in this situation? What improvements might you suggest?

You have recently been hired by Martyn Airlines (MA), a budget airline based in and around the Eurozone region. MA was founded eight years ago by John Martyn and currently operates 74 flights in the Eurozone.
MA is privately owned by John and his family, and had sales of £97 million last year.
MA sells primarily to online customers. Customers visit the MA website and choose the flight and fare combination appropriate to their requirements. All transactions are paid immediately via credit card.
MA’s growth to date has been financed from its profits. Whenever the company had sufficient capital, it would open a new flight destination. Relatively little formal analysis has been used in the capital budgeting process. John has just read about capital budgeting techniques and has come to you for help. The company has never attempted to determine its cost of capital, and John would like you to perform the analysis.
Because the company is privately owned, it is difficult to determine the cost of equity for the company.
You have determined that, to estimate the cost of capital for MA, you will use Ryanair Holdings Ltd as a representative company.