Using whichever model(s) you deem appropriate, estimate the cost of capital for Yahoo (YHOO) and Altria...
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Using whichever model(s) you deem appropriate, estimate the cost of capital for Yahoo (YHOO) and Altria (MO) in December 2004. At that time, the yield on the 10 year and 30 year U.S. government bonds was 4.2% and 4.9%, respectively. Both firms have opportunities to make new investments that are broadly similar to their existing assets and are expected to produce an equity return of 10% per year. The investments would be financed with the same historical mix of debt and equity. In other words, focusing directly on the cost of equity is sufficient. No unlevering or relevering is necessary. Using whichever model(s) you deem appropriate, estimate the cost of capital for Yahoo (YHOO) and Altria (MO) in December 2004. At that time, the yield on the 10 year and 30 year U.S. government bonds was 4.2% and 4.9%, respectively. Both firms have opportunities to make new investments that are broadly similar to their existing assets and are expected to produce an equity return of 10% per year. The investments would be financed with the same historical mix of debt and equity. In other words, focusing directly on the cost of equity is sufficient. No unlevering or relevering is necessary.
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