Professor G is considering an investment in a rental condo in the Caribbean. Suppose that he has estimated the IRR of unlevered and levered cash flows of 8% and 11%. These IRRs includes both rental income and personal use benefits. To evaluate if these IRRs are sufficent for the risk of the investment, compute the cost of equity and weighted average cost of capital. Compare the unlevered FCFF IRR to the WACC to ensure there is sufficent return to payoff debt and return a reasonable return on equity. Compare the levered FCFE IRR to the cost of equity. Professor G cannot decide if the condo is best proxied by investments in Marriott or Airbnb stock. Marriott's levered stock beta is

Professor G is considering an investment in a rental condo in the Caribbean. Suppose that he has estimated the IRR of unlevered and levered cash flows of 8% and 11%. These IRRs includes both rental income and personal use benefits. To evaluate if these IRRs are sufficent for the risk of the investment, compute the cost of equity and weighted average cost of capital. Compare the unlevered FCFF IRR to the WACC to ensure there is sufficent return to payoff debt and return a reasonable return on equity. Compare the levered FCFE IRR to the cost of equity. Professor G cannot decide if the condo is best proxied by investments in Marriott or Airbnb stock. Marriott's levered stock beta is 1.68 (as of 11/2020). Marriot has a stock market cap of \$39B and net debt of \$10.7B. Airbnb has a levered beta of 0.6 and market D/E ratio of 0.8 . The condo's cost of debt of 3.5% (loan APR) and tax rate is 35%. The condo will be financed using $200k of personal equity and $466k of debt. Lastly, a risk premium will be added to Ke and Kd to account for Aruba country ris, and the illiquidity of the condo vs. investments in stock. Compute the Ke and WACC for the condo investment using Marriott or Airbnb. Hint: Unlever the proxy betas using the proxy's D/E and relever using the condo investment's D/E. The current long term Treasury rate is 1.50% and you expect the stock market risk premium to be Marriott Prc Airbnb Proxy