The New York Yankees, the baseball franchise, is considering introducing a new line of clothes with the Yankee logo on them. The Yankees are a privately owned firm and therefore have no risk parameters estimated for them. Publicly traded firms involved in the apparel business have an average beta of 1.15 and an average D/E ratio of 20%. The treasury bond rate is 7%, and the corporate tax rate is 40%.

a. Estimate the beta and cost of equity for this project.

b. Should you be using a higher cost of equity because the Yankees are privately owned business? Why or why not?