Estimate the cost of capital of the firm

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Reference no: EM13890098

You are analyzing Tiffany Corp, an upscale retailer. The regression estimate of the firm's beta is 0.75. Standard error of beta estimate is 0.50. The average unlevered beta of comparable specialty retailing firms is 1.15. Tiffany has a Debt-Equity ratio of 20%. Its tax rate is 40%.

a) Estimate a range for the beta from the regression. Tiffany is rated BBB. The Default Spread for BBB-rated firms is 1% over Treasury Bond rate. Treasury Bond rate is 6.5%. Assume an Equity Risk Premium of 5.5%.

b) Estimate the Cost of Capital of the firm.

Reference no: EM13890098

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