1a You now need to calculate the cost of debt for Tesla. Consider the following four bonds issued by Tesla: What is the weighted average cost of debt for Tesla using the book value weights and the market value weights? Does it make a difference in this case if you use book value weights or market value weights?
Bonds	Book Value	Book Value Weight		Market Value	Market Value Weight	Yield to Maturity
1.	$3 B			$2.6 B		4.35%
2.	$1 B			$0.92 B		3.92%
3.	$2 B			$2.14 B		2.25%
4.	$2 B			1.86 B		2.86%
Weighted Average Cost of Debt (based on book values)
Weighted Average Cost of Debt (based on market values)
Which is more appropriate?
1b. You now have all the necessary information to calculate the weighted average cost of capital for Tesla, which can be used as an approximation for that of SMI. Calculate the weighted average cost of capital using book value (of debt and equity) weights and market value (of debt and equity) weights assuming the company has a 35 percent marginal tax rate. Which cost of capital number is more relevant?
Weighted Average Cost of Capital (based on book values of debt and equity) show calculations			(35% marginal tax rate)
Weighted Average Cost of Capital (based on Market values of debt and equity) show calculations			(35% marginal tax rate)
Which is more relevant?
1c. You used Tesla as a representative company to estimate the cost of capital for SMI. What are some of the potential problems with this approach in this situation? What improvements may you suggest?
Any potential problems with this pure play approach?
What improvements do you suggest to better reflect the WACC of SMI?

Book Value of Equity	$4,711,480
Stock Price	310.11
Market Value of Equity (market Capitalization)	52.119B
Number of Shares Outstanding	168.07M
Stock Beta	0.73
3-month T-bill rate	1.06
Cost of Equity	6.17%