Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter12: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 12.4E
Related questions
Question
![1. Consider the following airline industry data from mid-2009:
Company Name
Delta Air Lines (DAL)
Southwest Airlines (LUV)
JetBlue Airways (JBLU)
Continental Airlines (CAL)
Market
Capitalization
($mm)
4,938.5
4,896.8
1,245.5
1,124.0
Total
Enterprise
Value ($mm)
17,026.5
6,372.8
3,833.5
4,414.0
Equity Beta
2.04
0.966
1.91
1.99
Debt Ratings
B
BBB
CCC
BB
Asset
beta
0.78
0.77
0.63
Suppose that you are considering expanding your business into airline industry and need to
estimate cost of capital of your project. Risk-free rate and market risk premium are 1.5% and 8%
a) Based on the data provided in the table estimate asset beta of the airline industry](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F757db011-2cfc-4f52-bd0b-96709f63daba%2F47aaecfb-3c0d-4453-b322-30fd95a80519%2Fnu1ojv_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1. Consider the following airline industry data from mid-2009:
Company Name
Delta Air Lines (DAL)
Southwest Airlines (LUV)
JetBlue Airways (JBLU)
Continental Airlines (CAL)
Market
Capitalization
($mm)
4,938.5
4,896.8
1,245.5
1,124.0
Total
Enterprise
Value ($mm)
17,026.5
6,372.8
3,833.5
4,414.0
Equity Beta
2.04
0.966
1.91
1.99
Debt Ratings
B
BBB
CCC
BB
Asset
beta
0.78
0.77
0.63
Suppose that you are considering expanding your business into airline industry and need to
estimate cost of capital of your project. Risk-free rate and market risk premium are 1.5% and 8%
a) Based on the data provided in the table estimate asset beta of the airline industry
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