Pioneer Inc. is a young firm with high growth potential in the telecommunication industry.

Its current capital structure consists of 20% long-term bond and 80% common stock.

(1) Among the following choices of beta, choose the appropriate one for Pioneer Inc.

A. Beta = - 2

B. Beta = 0.9

C. Beta = 2.5

D. Beta = 1

Morningstar / Ibbotsons current estimate of market risk premium is 6%.

The volatility of the companys stock is 30%.

The following table shows the current market data of treasury securities.

Yield of 3-month Treasury Bill	Yield of 5-year Treasury Note	Yield of 10-year Treasury Note	Yield of 30-year Treasury Note
0.03%	0.5%	1.2%	1.9%

(2) Use your choice of beta for Pioneer Inc., apply CAPM and estimate the companys cost of equity.

(3) HOW would the following event/factor affect the companys cost of capital?

Assuming there are no other contemporaneous events / changes.

- S&P has recently changed the companys rating from BB to investment grade.

(4) How would the following event/factor affect the companys cost of capital?

Assuming there are no other contemporaneous events / changes.

- The companys CEO resigned due to health concerns.