Please comment on the differences in risk between the two companies as reflected in their respective required rates of return and weighted average cost of capital. Explain why they are different and how the sectors in which these companies operate affect these differences.

8 9 Company Name Company Name 10 Tesla AAPL 11 12 Sector & Industry Sector & Industry 13 Automobile Consumer Electronics 14 15 Beta 1.70 Beta 1.06 16 17 Rf 3.13% Rf 3.13% 18 19 Equity Risk Premium 10.85% Equity Risk Premium 6.78% 20 (= Beta * (E(RM) - Rf)) (= Beta * (E(RM) - RF)) 21 22 Required Rate of Return 15.39% Required Rate of Return 13.17% 23 24 WEquity 99.40% WEquity 95.90% 25 26 W Debt 0.60% W Debt 4.10% 27 28 After-tax Cost of Debt 4.10% After-tax Cost of Debt 2.90% 29 30 WACC 13.90% WACC 9.60% 31 32 Beta. RRR and WACC