Suppose you are analyzing a new project for Air Canada. Since the company isn't publiclytraded, you will use comparative data from the North American Airline industry to estimatethe beta for Air Canada. The top 4 companies according to Market Share are Delta AirLines (DAL-US), Southwest Airlines (LUV-US), United Airlines (UAL-US), and American Airlines(AAL-US). A summary of each firm is provided below as at April 5, 2024:Market CapTotal DebtEquityName.($mm)($mm)BetaDAL-US29,63027,2811.12LUV-US16,9119,2000.84UAL-US14,16636,7061.19AAL-US9,01040,6631.25* 3-Year BetoUsing the information provided, answer the following:a) Calculate the Levered Beta for Air Canada using the industry information providedabove, and Air Canada's target Debt-to-Equity ratio of 0.60. Assume the samestatutory tax rate of 22% applies to the four US companies as well as Air Canada.b) Assume Government of Canada Treasury Bills have a yield of 4.00% and the market riskpremium is 5.50%. Air Canada has a credit spread of 2.50% above Government ofCanada risk-free debt. Calculate Air Canada's Weighted Average Cost of Capital(WACC). Show your answer to 2 decimal places.

Part a) - Calculating Levered Beta for Air Canada:Calculate the unlevered beta using the…

Answered: Suppose you are analyzing a new project…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 13PC

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