Jet Taxi is an air taxi company that caters to wealthy individuals, executives, and celebrities. The entity acquires commercial jet aircraft from various manufacturers and other parties and provides air taxi services worldwide. As of December, 2016, Jet Taxi managed a portfolio of over 1,000 aircraft. Jet Taxi is wholly owned by Western Holdings, a global tourism company.

Cost of Capital

Western Holdings is publicly traded and its equity beta is 2. The equity beta for Jet Taxi is not observable because the entitys stock is not publicly traded. There are, however, a number of publicly traded air taxi companies. The data for two such companies are given below. The Jet taxi operations are 50% equity financed and have a marginal tax rate of 40%. The cost of borrowing for Jet Taxi is 6%.

At the present time, the long-term U.S. Treasury bond rate is 5%. Based on historical data, most analysts believe that a reasonable estimate of the market risk premium (i.e., R_m r_f) is 7.5%.

In order to value Jet Taxi CEO Goldstein needs an estimate of WACC for Jet Taxi.

Air Taxi Companies

Company	Beta Equity	D/E Ratio	Marginal Tax Rate
Levent Jets	2.0	0.5	0.4
Mert Jets	1.5	0.3	0.4

1. What is the WACC for Jet Taxi?