You are working as a consultant for Green Team, Inc. (GT), an energy and construction company based in San Diego. GT was founded 10 years ago by Bill Rettman and Isabel Flores. Rettman and Flores met 21 years ago when both worked as engineering managers for San Diego Gas & Electric. GT provides energy efficient heating, ventilation and air conditioning (HVAC) solutions and other energy saving technology to a variety of corporate customers. Recently, GT has been exploring opportunities to expand its offerings to include large-scale systems for convention centers, government facilities and transit hubs.

The company wants to bring in new investors to help fund their expansion. Bill and Isabel are wondering how to price additional shares. A key component of their analysis is an estimate of the required return for GT shareholders. Bill and Isabel want to use a publicly traded company as a benchmark and they have selected Trane Technologies plc (ticker TT) as one that closely reflects GTs business. 1 Your consulting assignment is to investigate the weighted average cost of capital for TT as well as examining certain other public companies as described below, and report back to Rettman and Flores.

After working on this project for a week, you have a status call with Bill, Isabel and their CFO. The CFO says he thinks Lennox International (ticker LII) and General Electric (ticker GE) are also potential benchmarks for TT, and it might be good to expand the analysis to also look at those companies. Do you think LII or GE are similar to TT? Why or why not? (Summary information about all three companies is available on Yahoo! and more detailed business descriptions are contained in 10-K reports.)

1. Compare the beta values for TT, LII and GE. What do you notice and what conclusion do you draw?

2. Choose three ratios that you think are relevant to TT and compare the values with LII and GE. What do you think accounts for the differences you observe?