The next one is a continuation of the first.

5. You are trying to determine the equity beta () of a privately held company, Summa Corporation, that is not required to publish its financial information. The average asset beta from a group of comparable companies is 1.28. If Summa Corp has a debt/equity ratio of 30% and the tax rate is 35% what is its equity beta (B)? Why do we use asset betas for the comparable companies rather than equity betas? What is the appropriate method to determine comparable companies? What are the risks involved? 6. If the historical return over the past 30 years of the S&P 500 Index is 8% and the risk-free rate (as measured by the 30-Year Treasury Bond) is 3%, what is the equity cost of capital for Summa Corp? If Summa's long-term debt trades at Treasuries plus 1.25% what is Summa's WACC? What two factors are the biggest determinants of equity cost? How would you explain these factors to a non-finance person