Consider the following data for US department stores in mid-2009, showing the equity beta, Debt-to-Enterprise-Value ( D/V = D/[D+E] ), and debt rating.

A) Estimate asset beta (_A) for Saks.

B ) If you were considering opening a department store and needed to estimate cost of capital for your project, how would you do that? Assume: your project is going to be 100% equity financed; asset betas for department stores in the above list (excluding Saks) are estimated to be 1.13, 1.36, 1.27, 0.93, 1.3, 1.09. Applicable risk free rate is 4% and market expected return is 10%

C) Suppose YTM of Sakss debt was 29%. Would this value be a realistic estimate of Sakss cost of debt (r_d)? Explain briefly (short answer; no computations needed).

If your answer in c) is no provide your estimate of cost of debt (r_d) for Saks in mid-2009 assuming that the average loss rate for unsecured debt is about 60% .