North South Airlines has been granted permission to fly passengers between major U.S. cities. The new company

Question:

North South Airlines has been granted permission to fly passengers betweenmajor U.S. cities. The new company faces competition from four airlines thatoperate between the major cities. The betas of the equity of the four majorcompetitors (A, B, C, D) are 1.63, 1.79, 1.97, and 2.13; and the debt-to-equityratios of these four companies (in the same order: A, B, C, D) are 0.14, 0.30,0.49, and 0.66. Although these D/E ratios vary, all airline debt is rated the same.Suppose the yield on airline debt is 8.5%, the risk-free rate is 4.5% and theexpected market risk premium (the average difference between the marketreturn and the risk-free rate) is 7.5%. What is the (or discountrate) in percentage that you should use in valuing North South Airlines?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...