The New York Yankees, the baseball franchise, is con- sidering introducing a new line of clothes...

 

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The New York Yankees, the baseball franchise, is con- sidering introducing a new line of clothes with the Yankee logo on them. The Yankees are a privately owned firm and therefore have no risk parameters estimated for them. Publicly traded firms involved in the apparel business have an average beta of 1.15 and an average debt/equity ratio of 20%. The treasury bond rate is 7%, and the corporate tax rate is 40%. a. Estimate the beta and cost of equity for this project. b. Should you be using a higher cost of equity because the Yankees are a privately owned busi- ness? Why or why not? The New York Yankees, the baseball franchise, is con- sidering introducing a new line of clothes with the Yankee logo on them. The Yankees are a privately owned firm and therefore have no risk parameters estimated for them. Publicly traded firms involved in the apparel business have an average beta of 1.15 and an average debt/equity ratio of 20%. The treasury bond rate is 7%, and the corporate tax rate is 40%. a. Estimate the beta and cost of equity for this project. b. Should you be using a higher cost of equity because the Yankees are a privately owned busi- ness? Why or why not?

Answer rating: 100% (QA)

a Levered Beta 115 DebtEquity Ratio 02 Tax Rate 40 Unleve... View the full answer