1.Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the "Search for Company Filings" link and the "Companies & Other Filers" link, enter "Tesla," and search for SEC filings made by Tesla. Find the most recent 10Q and 10K and download the forms. Look on the balance sheet to find the book value of debt and the book value of equity.

2.

10-Q Report: (in millions)

a.Book Value of Debt: $1,526

Debt = Total Liabilities & Equity - Total Stockholders' Equity - Total Current Liabilities

Total liabilities and equity

$38,135

Total stockholders' equity

$9,855

Total current liabilities

$12,270

Book Value of Debt

$16,010

b.Book Value of Equity: $11,381 (in the millions)

Stockholder's Equity (book value of equity) = Total Assets -Total Liabilities

Total assets

$38,135

Total liabilities

$26,754

Book Value of Equity

$11,381

2. To estimate the cost of equity for Tesla, go to finance.yahoo.com and enter the ticker symbol "TSLA." Follow the various links to find answers to the following questions: What is the most recent stock price listed for Tesla? What is the market value of equity, or market capitalization? How many shares of stock does Tesla have outstanding? What is the beta for Tesla? Now go back to finance.yahoo.com and follow the "Bonds" link. What is the yield on 3-month Treasury bills? Using a the historical market risk premium, what is the cost of equity for Tesla using the CAPM?

a.Most recent stock price listed for Tesla - $1,499.11

b.Market value of Equity - 278.047B

c.Shares Outstanding - 185.48M

d.Beta - 1.20

e.Yield on 3-month treasury bills - 0.11%

Now go back to finance.yahoo.com and follow the "Bonds" link. What is the yield on 3-month Treasury bills?

Cost of equity usingYield on three month Treasury bond

Expected return= risk-free rate + (MRP x Beta)

= 2.46 + (7.96% x 1.20)

=2.55552

3. You now need to calculate the cost of debt for TLSA. Go to finra-markets.morningstar.com, enter TSLA as the company, and find the yield to maturity for each of TLSA's bonds. What is the weighted average cost of debt for TLSA 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?

4. You now have all the necessary information to calculate the weighted average cost of capital for TLSA. Calculate this using book value weights and market value weights, assuming TLSA has a 21 percent tax rate. Which cost of capital number is more relevant?

5. You used TSLA 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 might you suggest?