1. WACC

Calculate the cost of capital for StrawHat using the excel template on iLearn. Use the following assumptions.

1. Cost of equity.

a) Since StrawHat is currently private and has no stock price information, we can use the cost of equity of Dropbox as an estimate. Use the daily stock prices from April 1^st, 2020 to March 31^st, 2021 to calculate daily returns for Dropbox (ticker DBX). You can find historical stock prices on Yahoo Finance. You will see my example of FB on iLearn in couple of weeks.  

b) Use the prices for S&P500 (ticker: SPY) to calculate the market return in the same sample period. Use 1% APR as annual risk-free rate.

c) Use CAPM to estimate beta.

d) Estimate cost of equity for Dropbox assuming 7% annual expected market return.

2. Cost of debt

a) StrawHat currently has outstanding zero-coupon corporate bonds with YTM of 5% APR.

b) Use  a 38% effective tax rate.

3. Weights

a) StrawHat expects to raise $10 million in equity.

b) StrawHat’s corporate bonds are currently valued at $5 million.