You are trying to assess the cost of capital for a small commercial aircraft manufacturer called Jetstream Inc. Unfortunately, Jetstream is a private company so you can not estimate its equity beta using its stock returns. You have, however, collected some information on comparable firms that are publicly traded (seethetable below). Assume that Jetstream targets a stable debt to enterprise value ratio(D/(D+E))of 10% and thatits cost of debt is 3.95%. Allfirms face amarginal tax rate of21%, the market risk premium ([])is 5%, and the risk-free rate ()is 3.5%. Additionally, assume that corporate taxes are the only market imperfection.

A)Using the CAPM calculate the cost of equity for each competing firm. Then, usingtheModigliani and Millerformulacalculate the unlevered cost of capital for each competing firm. Tabulate yourresults in a table similar to the one above.

B)Assume that the unlevered cost of capital of Jetstream Inc. is equal to the average unlevered cost of capital of the competing firms, what is Jetstreams cost of equity?C)What is Jetstreams WACC?

re ru Lightwing Aircraft Inc. Gulfstream Jets Into Thin Air Corp Turbulence Corp. D/(D+E) 50% 45% 15% 55% ro 4.85% 4.80% 4.00% 4.87% BE 1.8 1.75 1.3 1.89