II. Consider the following airline industry data from mid-2009: Suppose that you are considering expanding your business into the airline industry and need to estimate the cost of capital of your project. The risk-free rate and the market risk premium are 2% and 6% a) Estimate the asset beta of the airline industry b) Estimate the cost of capital of an airline company if it is 100% equity financed c) Which betas have more dispersed values - equity betas or asset betas? Why? Explain briefly Source: S. Schaefer and I. Strebulaev, "Risk in Capital Structure Arbitrage," Stanford GSB working paper, 2009. Source: "Corporate Defaults and Recovery Rates, 1920-2008," Moody's Global Credit Policy, February 2009. II. Consider the following airline industry data from mid-2009: Suppose that you are considering expanding your business into the airline industry and need to estimate the cost of capital of your project. The risk-free rate and the market risk premium are 2% and 6% a) Estimate the asset beta of the airline industry b) Estimate the cost of capital of an airline company if it is 100% equity financed c) Which betas have more dispersed values - equity betas or asset betas? Why? Explain briefly Source: S. Schaefer and I. Strebulaev, "Risk in Capital Structure Arbitrage," Stanford GSB working paper, 2009. Source: "Corporate Defaults and Recovery Rates, 1920-2008," Moody's Global Credit Policy, February 2009