You are analyzing Tiffany & Company, an upscale retailer, and run a regression that estimates a beta of 0.8. You also calculate that the average upscale retailer has an unlevered beta of 1.2. If Tiffany & Company has a debt-equity ratio of 1/3 and a tax rate of 21%, estimate its fundamental beta. Does this seem more realistic than its beta using historical returns? Why or why not? (6 points)

Now calculate Tiffany & Companys cost of capital (WACC) assuming its debt is rated BBB, treasury bonds yield 2.85%, BBB companies have a default spread of 1.7%, and the equity risk premium is 4.77%. Use the fundamental beta you calculated above and any other information you may need from above. (8 points)