EntertainYou Inc. is an American company that operates in two businesses; Entertainment and Cable TV. The company gets approximately 30% of its revenues from the latter. In this industry, the average beta value is 1,11 and the average debt to equity ratio is 60,17%. The average beta value in the entertainment business is 1,33 with an average debt to equity ratio of 20,07%.

EntertainYou Inc. has 500 000 shares outstanding, trading at 22,10 dollars. It has 4 513 000 dollars in debt (market value). The US treasury bond rate is 2%. EntertainYou Inc. has an operating income of 540 000 and 80 000 in interest expenses. Use a tax rate of 34% in all cases.

At the moment, the S&P 500 is at 3 400, paying 5% in dividends. The expected long-term growth in dividends is expected to be 1,8%.

1. What is the firms D/E-ratio?
2. Estimate the implied equity risk premium in the market.
3. Estimate the unlevered betas in the entertainment industry and the Cable TV industry.
4. Estimate EntertainYou Inc.s bottom-up beta.
5. Estimate the firms cost of equity.