Question: 1. (4.5 points) Consider the following airline industry data from mid-2009: Market Total Capitalization Enterprise Company Name Delta Air Lines (DAL) Southwest Airlines (LUV) 4,896.8

1. (4.5 points) Consider the following airline industry data from mid-2009:

1. (4.5 points) Consider the following airline industry data from mid-2009: Market Total Capitalization Enterprise Company Name Delta Air Lines (DAL) Southwest Airlines (LUV) 4,896.8 JetBlue Airways (JBLU) Continental Airlines (CAL) 1,124.0 (Smm) Value (Smm) Equity Beta Debt Ratings 2.04 0.966 1.91 1.99 17,026.5 3,833.5 4,414.0 1,245.5 Estimate cost of capital of an all-equity financed project in the airline industry. Asset betas for DAL, LUV and JBLU are estimated to be 0.712, 0.76 and 0.83 respectively; risk-free rate and market risk premium are 3% and 5% (make your estimate as robust as possible given the data in the problem) a) b) Which betas have more dispersed values -equity betas or debt betas? Why? Explain briefly

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