$1).$ Use the following information to estimate the EVA for Alexandria Real Estate Equities. Alexandria Real Estate Equities is a real estate investment trust specializing in owning and developing life science properties. The company holds significant concentrations of urban cluster campuses in major markets like Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle Park near Raleigh, North Carolina. Alexandria has an extensive development pipeline, with $8$ million square feet currently under construction or scheduled to begin construction in the next six quarters. The total investment in developing and constructing these properties amounts to approximately $$2\mathrm{.}6$ billion, covering expenses related to design, construction, and other development activities. Nearly $80\%$ of this space is either pre$-$leased or under negotiation, spanning projects in Seattle, San Francisco, San Diego, Boston, Maryland, and North Carolina. Alexandria anticipates a $25\%$ return on capital for these projects. Alexandria maintains a long$-$term debt$-$to$-$total asset ratio of $40\%$ and has a beta of $1\mathrm{.}34.$ The risk$-$free rate is $4\mathrm{.}5\%,$ with a historical market risk premium over the risk$-$free rate at $5\mathrm{.}5\%$ based on US averages. Additionally, Alexandria's cost of debt capital is $5\mathrm{.}8\%.$

a$.$ How can the Capital Asset Pricing Model $($CAPM$)$ be used to estimate Alexandria$$s cost of equity capital?

b$.$ Using the CAPM: In principal, why can you use the historical market risk premium over the risk free rate as an estimate of the market risk premium going forward? Explicitly state your reasoning.

c$.$ Estimate the WACC Alexandria should use in evaluating the EVA on their development portfolio.

d$.$ Assume Alexandria will be able to grow its economic value added from their development portfolio $3\%$ a year in perpetuity. Estimate the value creation $($i$.$e$.,$ the present value of EVA$)$ for Alexandria from these projects.

e$.$ What are the important issues in estimating EVA? How does the supply in the market affect the EVA calculation?