You have recently been hired by Quality Auto Parts (QAP) in its relatively new treasury management department. QAP was founded eight years ago by Larry Masters. The company sells auto parts. The company is privately owned by Martha and her family, and it had sales of $26 million last year. Relatively little formal analysis has been used in QAP's capital budgeting process. Larry has just read about capital budgeting techniques and has come to you for help. For starters, the company has never attempted to determine its cost of capital, and Larry would like you to perform the analysis. Because the company is privately owned, it is difficult to determine the cost of equity for the company. Larry wants you to use the pure play approach to estimate the cost of capital for QAP, and he has chosen AutoZone as a representative company. The following questions will lead you through the steps to calculate this estimate. QUESTIONS 1. Most publicly traded corporations are required to submit quarterly (10-Q) and annual (10- K) reports to the SEC detailing the financial operations of the company over the past quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the "Search Company and Individual Filings" link, and search for SEC filings made by AutoZone (AZO). Find the most recent 10-Q or 10-K, and download the form. link and search for SEC filings made by AutoZone (AZO). Find the most recent 10-Q or 10-K, and download the form. finance.yahoo.com and enter the ticker To estimate the cost of equity for SNA, go to symbol AZO. Follow the links to answer the following questions: What is the most recent stock price listed for AZO? How many shares of stock does AZO have outstanding? What is the cost of equity for AZO using the DDM? What is the beta for AZU? Now go back to finance.yahoo.com and follow the "Bonds" link. What is the yield on 30-year Treasury bonds? Using the historical market risk premium of 7%, what is the cost of equity for AZO using CAPM? What is your final estimate for the cost of equity?