You are trying to estimate the cost of capital for La Coste, an upscale specialty retailer. The firm is in only one business, specialty retailing; comparable firms have an average published beta of 1.15, an average debt ratio of 30% and an average tax rate of 40%. The firm has provided you with the following information:

The regression beta is 0.75 with a standard error of 0.5.

The firm’s bonds are rated A, and the default spread for A rated bond is 0.015. The company plans to maintain its current debt ratio of 20%.

The Treasury bond rate is 0.042 and the equity risk premium is 0.064.

The tax rate for La Coste is 40%.

What is the average unlevered beta for the comparable firms?

Answer for part 1
Estimate La Coste's beta based upon the comparable firms (i.e. Bottom up beta)  

Answer for part 2
What is La Coste's before tax cost of debt?

Answer for part 3
What is La Coste's after tax cost of debt?

Answer for part 4
Use beta calculated in part two to calculate La Coste's cost of equity?

Answer for part 5
What is the WACC?

Answer for part 6