Daytop is rated a and can borrow money at 5. the risk-free, Ask an Expert

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DayTop Inns is a publicly traded company, with 10 million shares trading at $ 70 a share and $ 300 million in debt (market value as well as book value) outstanding. The firm derives 60% of its value from hotels and the remaining 40% from transportation. The unlevered beta is 0.8 for firms in the hotel business and 1.2 for firms in the transportations business. DayTop is rated A and can borrow money at 5%. The risk-free rate is 4.5% and the market risk premium is 4%; the corporate tax rate is 40%.

a. Estimate the cost of capital for DayTop Inns.

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Category:- Basic Finance
Reference No.:- M951771

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