Question 18. Aaron Athletics Companys capital structure consists of debt and common stock. The company uses the CAPM to estimate its cost of common equity.

Aaron Athletics Historic Betas: Average beta from 2010 to 2019:1.48 2020 YTD (1/1/2020-12/20/2020): 1.36

Historical S&P500 Market Return Arithmetic average return (1990-2020): 13.2% Geometric (Compound annualized) average rate of return (1990-2020): 10.32%

Historical FTST 100 Index Market return Arithmetic average return (1990-2020): 11.3% Geometric (Compound annualized) average rate of return (1990-2020): 9.93%

Historical Aaron Athletics Market Return Arithmetic average return (1990-2020): 15.6% Geometric (Compound annualized) average rate of return (1990-2020):12.24%

Currently, Aaron Athletics stock price is $50, with a total number of 3 million shares outstanding.

The current 20-year Treasury bond is 2%

The current average yield for the AAA rating corporate bonds is 5%

The companys average effective tax rate is 35%.

Current Yield on publicly trade Aaron Athletics bond which has an AAA rating: Coupon 7% (paid annually), 10 years to maturity.

Current bond price $94 for the face value of $100

Current value of bond is $94,000,000.

a) Find the companys cost of equity (cost of stock).

b) Find the companys weight of debt.

c) Find the companys weight of equity.

Please answer in Excel