Question $4$

$[$S marks$]$

Suppose that Moonshot, Ince is considering going public and ourrently valuing its shares for an initial public offering $($IPO$).$ The analyst of Moonshot has identified Aerojet Rocketdyne Holdings as a comparable firm operating in the aerospace induatry and has estimated the following:

The comparable company Aerojet Rocketdyne has an unlevered asset beta $y=0\mathrm{.}7.$

Assume that the risk$-$free rate $($R$)$ is $656$ and the market risk premium $($MRP$)$ is $1056.$ Answer questions a$)$ and b$)$ below.

a$)$ Determine the unlevered cost of capital for the aerospace business.

$($Lecture notes pp$\mathrm{.}25-27$ and pp$30-32.$ "Note the beta erolevescing procedure is unnecessary.$)$

Answer $($show the steps$/$calculation toward your results$)$:

b$)$ Suppose that Moonshot Inc, is financed through equity capital and debt capital, respectively, of $E=$$$72$ billion and $D=$$$48$ billion. Its equity beta and debt beta, respectively, are estimated at ${}_c=1\mathrm{.}02$ and ${}_0=0\mathrm{.}10.$ Moonshot faces a marginul tax rate of $2005.$

Calculate the cost of equity capital $R_c$ and the cost of debt capital $R_a$ and determine the weighted average cost of capital WACC for Moonshot Inc.

$($lecture notes pp$.37-38$ and pp$\mathrm{.}41.$ Fiote the beta re$-$levering procedure is unnecessary$)$

Answer $($show the steps$/$calculation toward your results$)$: