Question
BAM Advisors is estimating the cost of capital of Frontier Corporation as part of the valuation analysis.BAM will be using this estimation,along with projected cash
BAM Advisors is estimating the cost of capital of Frontier Corporation as part of the valuation analysis.BAM will be using this estimation,along with projected cash flows from Frontier's new projects,to estimate the effect of these new projects on the value of Frontier.BAM has gathered the following information on Frontier Corporation:
Current Year ($) Forecasted for Next Year ($)
Book Value of debt 50 50
Market value of debt 62 63
Book Value of shareholders' equity 55 58
Market Value of shareholders' equity 210 220
What are the weights BAM Advisors should apply in estimating Frontier's cost of capital for debt and equity,respectively? Please Explain Why?
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