Question
You are trying to estimate the cost of equity for a privately owned railroad company called the Illinois-Pacific Railroad. You know that the company's cost
You are trying to estimate the cost of equity for a privately owned railroad company called the Illinois-Pacific Railroad. You know that the company's cost of debt is 4% and its debt-to-enterprise value ratio is 30%. You have collected the following information on publicly traded railroads that are comparable. All of the comparable firms have no excess cash. You also know that the risk-free rate is 2% and the market risk premium in 5%. What is the best estimate for the cost of equity of the Illinois-Pacific Railroad? Select one.
Company | Beta | Market Capitalization (in $ billions) | Market Value of Debt (in $ billions) | Cost of Debt |
UNP | 1.05 | 133.20 | 24.70 | 3.0% |
CSX | 1.21 | 59.40 | 16.30 | 3.2% |
NSC | 1.38 | 54.70 | 12.20 | 3.1% |
KSU | 0.96 | 18.30 | 3.20 | 2.9% |
I. | 8.16% | |
II. | 7.75% | |
III. | 6.91% | |
IV. | 9.5% |
Question 5 5 points Save Answer You are trying to estimate the cost of equity for a privately owned railroad company called the Illinois-Pacific Railroad. You know that the company's cost of debt is 4% and its debt-to-enterprise value ratio is 30%. You have collected the following information on publicly traded railroads that are comparable. All of the comparable firms have no excess cash. You also know that the risk-free rate is 2% and the market risk premium in 5%. What is the best estimate for the cost of equity of the Illinois-Pacific Railroad? Select one. Company Beta Market Capitalization Market Value of Debt (in $ billions) (in $ billions) Cost of Debt UNP 1.05 133.20 24.70 3.0% CSX 1.21 59.40 16.30 3.2% NSC 1.38 54.70 12.20 3.1% KSU 0.96 18.30 3.20 2.9% OI. 8.16% O II. 7.75% O III. 6.91% O IV. 9.5% Question 5 5 points Save Answer You are trying to estimate the cost of equity for a privately owned railroad company called the Illinois-Pacific Railroad. You know that the company's cost of debt is 4% and its debt-to-enterprise value ratio is 30%. You have collected the following information on publicly traded railroads that are comparable. All of the comparable firms have no excess cash. You also know that the risk-free rate is 2% and the market risk premium in 5%. What is the best estimate for the cost of equity of the Illinois-Pacific Railroad? Select one. Company Beta Market Capitalization Market Value of Debt (in $ billions) (in $ billions) Cost of Debt UNP 1.05 133.20 24.70 3.0% CSX 1.21 59.40 16.30 3.2% NSC 1.38 54.70 12.20 3.1% KSU 0.96 18.30 3.20 2.9% OI. 8.16% O II. 7.75% O III. 6.91% O IV. 9.5%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started