Argo Airlines, a privately held firm, is looking to buy additional gates at its home airport for $635,000 Argo has $200,000 in the bank but that money may not be spent as it is used to pay salaries, suppliers, and equipment Argo asked its bank for a loan but the bank refused saying that Argo's interest-bearing debt to equity was too high at 3.1 The bank said that Argo needed to lower that ratio below 2.3 in order to get the loan Separately, SkyBlue Airlines has approached Argo to see if Argo will buy it.

Argo's CFO hired you to help with the following tasks:

Calculate Argo's cost of capital based on two airlines trading in the capital marketsEastern and Western Since Argo does not trade, it has no beta, so you need to use Eastern and Western as proxies. Hint - the textbook has the formula in two separate chapters.