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18. 8. Suppose that American Airlines wants to expand into the retail shoe business to compete with Shoe Carnival. American Airlines has a beta of
18.
8. Suppose that American Airlines wants to expand into the retail shoe business to compete with Shoe Carnival. American Airlines has a beta of 1.55 and its capital structure is 80% debt. Shoe Carnival has a beta of 1.42 and its capital structure is 60% debt. If the risk-free rate is 4%, the tax rate is 21% and the market risk premium is 7%, then what is the cost of equity for a retail shoe business investment by American Airlines? a. 22.90% b. 8.72% c. 12.10% d. 15.01% e. 14.68% Step by Step Solution
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