using the information given, please andwer question 5 please.
2 Cost of capital (30). Please provide the simple reason of your key decisions Today is December 20, 2020. A US company Aaron Athletics Company's 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 share outstanding The current 20-year Treasury bond is 2% The current average yield for the AAA rating corporate bonds is 5% The company's 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. 5) If the company has a project with an IRR of 15%. Just based on the IRR criterion, do you think the company should accept the project or not? Why? 2 Cost of capital (30). Please provide the simple reason of your key decisions Today is December 20, 2020. A US company Aaron Athletics Company's 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 share outstanding The current 20-year Treasury bond is 2% The current average yield for the AAA rating corporate bonds is 5% The company's 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. 5) If the company has a project with an IRR of 15%. Just based on the IRR criterion, do you think the company should accept the project or not? Why
