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Cost Of Capital For Swan Motors

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Running head: COST OF CAPITAL FOR SWAN MOTORS INC. Cost of capital for Swan Motors Name Institution affiliation 1 COST OF CAPITAL FOR SWAN MOTORS INC. 2 1. Using the data gathered for Tesla, the Beta value for the company (β) is 0.91. The information available on Yahoo! Finance on the 13-week Treasury Bills last price gave a value of Rf 1.898. 2. Cost of Equity for Tesla using the CAPM To calculate this, we need the risk free rate Rf, the market risk premium (Rm - Rf) and the stock beta (β). The formula is as follows: CAPM: Rs =Rf + β * (Rm - Rf) Therefore Rs = 1.898 + 0.91 * 7% … = 1.898+ 6.37 = 8.268% (CAPM) 3. Cost of Debt for Tesla This is the interest required on a new debt issue, in other words, the yield to maturity on outstanding debt. The cost of debt also incorporates the tax component using the formula: after-tax cost of debt = interest rate * (1 - t) The yields to maturity for each of Tesla’s bonds are given as follows: TSLA4103351 TESLA INC 1.250 3/1/2021 B 1,203,137,000 54 TSLA4103350 TESLA INC 0.250 3/1/2019 B 668,852,000 33 TSLA4474416 TESLA INC 2.375 3/15/2022 B 566,512,000 38 From the convertible and long term debt obligations data, the ...
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