QUESTION 2 Consider the following airline industry data from mid-2009: Debt Ratings Market Capitalization ($mm) 4,938.5 4,896.8 1,245.5 1,124.0 Company Name Delta Air Lines (DAL) Southwest Airlines (LUV) JetBlue Airways (JBLU) Continental Airlines (CAL) Total Enterprise Value (mm) 17,026.5 6,372.8 3,833.5 4,414.0 B Equity Beta 2.04 0.966 1.91 BBB 1.99 BB Suppose that you are considering expanding your business into airline industry and need to estimate cost of capital of your project. Risk-free rate and market risk premium are 2% and 6%. a. Estimate asset beta of the airline industry b. Estimate cost of capital if the project is 100% equity financed C. Which betas have more dispersed values - equity betas or asset betas? Why? Explain briefly QUESTION 2 Consider the following airline industry data from mid-2009: Debt Ratings Market Capitalization ($mm) 4,938.5 4,896.8 1,245.5 1,124.0 Company Name Delta Air Lines (DAL) Southwest Airlines (LUV) JetBlue Airways (JBLU) Continental Airlines (CAL) Total Enterprise Value (mm) 17,026.5 6,372.8 3,833.5 4,414.0 B Equity Beta 2.04 0.966 1.91 BBB 1.99 BB Suppose that you are considering expanding your business into airline industry and need to estimate cost of capital of your project. Risk-free rate and market risk premium are 2% and 6%. a. Estimate asset beta of the airline industry b. Estimate cost of capital if the project is 100% equity financed C. Which betas have more dispersed values - equity betas or asset betas? Why? Explain briefly