You have recently been hired by Bio Lux Company, in itsrelatively new treasury management department. Bio Lux was foundedfive years ago by Jessica Parker. Jessica found a method to producehigh quality shampoo using natural ingredients. The shampooproduced by Bio Lux is in a good position to compete with othermore established shampoo producers. The company is privately ownedby Jessica Parker and her family, and it had sales of $12 millionlast year.

Bio Lux primarily sells its products through a wholesaler whodistributes the products through its network of retailersthroughout the country. Bio Lux’s growth to date has come from itsinnovation, quality, and low costs. When the company had sufficientcapital, it would expand production. Relatively little formalanalysis has been used in its capital budgeting process. Jessicahas just read about capital budgeting techniques and has come toyou for help. For starters, the company has never attempted todetermine its cost of capital, and Jessica would like you toperform the analysis. Because the company is privately owned, it isdifficult to determine the cost of equity for the company. Jessicawants you to use a similar company to estimate the cost of capital(WACC) for Bio Lux, and she has chosen Procter & Gamble as arepresentative company. The following questions will lead youthrough the steps to calculate this estimate.

1. To estimate the cost of equity for Procter &Gamble, go to finance.yahoo.com and enter the ticker symbol “PG.”Follow the various links at this website to find answers to thefollowing questions:

a) What is the most recent stock price (and provide theassociated date) listed for Procter & Gamble?

b) What is the market value of equity, or marketcapitalization?

c) How many shares of stock does Procter & Gamble haveoutstanding?

d) What is the beta for Procter & Gamble?

e) Now go back to finance.yahoo.com and follow the “Bonds” link.What is the yield on three-month Treasury bills? Using a 6 percentmarket risk premium, what is the cost of equity for Procter &Gamble using the CAPM?