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  1. business
  2. finance
  3. 3.) you find a firm that is comparable from a busi

3.) You find a firm that is comparable from a business perspective to your project....

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Finance

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3.) You find a firm that is comparable from a business perspective to your project. The comparable firm's name is BJR Corporation (BJR). BJR has a stock price of $42 per share and 12 million shares outstanding. It also has $130 million in outstanding debt which is currently trading in the market at a yield to maturity of 3.8%. BJR's equity beta is .8. The current risk-free rate of interest is 2% and the market risk premium is 5%. a.) First assume BJR's debt beta is zero. Estimate BJR's unlevered beta. Use this unlevered beta and the CAPM to estimate BJR's unlevered cost of capital. b.) Now estimate BJR's equity cost of capital using its current beta and the CAPM. If we assume BJR's debt cost of capital equals the current yield to maturity on its outstanding debt, then estimate BJR's unlevered cost of capital. c.) Why is the answer you got for BJR's unlevered cost of capital using approach A different from the answer you got using approach B? What could explain this

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