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4) You are analyzing Tiffany Corp, an upscale retailer. The regression estimate of the firm's beta is 0.75. Standard error of beta estimate is 0.50.
4) | You are analyzing Tiffany Corp, an upscale retailer. | ||||||
The regression estimate of the firm's beta is 0.75. | |||||||
Standard error of beta estimate is 0.50. | |||||||
The average unlevered beta of comparable specialty retailing firms is 1.15. | |||||||
Tiffany has a Debt-Equity ratio of 20%. | |||||||
Its tax rate is 40%. | |||||||
a) | Estimate the beta for the company based on comparable firms. | ||||||
b) | Estimate a range for the beta from the regression. | ||||||
Tiffany is rated BBB | |||||||
The Default Spread for BBB-rated firms is 1% over Treasury Bond rate. | |||||||
Treasury Bond rate is 6.5%. | |||||||
Assume an Equity Risk Premium of 5.5%. | |||||||
c) | Estimate the Cost of Capital of the firm |
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