Question

Apple (APPL) is planning to develop a new line of precision tools, a product whose riskiness...

  1. Apple (APPL) is planning to develop a new line of precision tools, a product whose riskiness is comparable to Watch Industries (WAI). We know that WAI has 20 million in shares outstanding trading at $10 a share. In addition, WAI has $600 million in debt outstanding, which trades at a yield of 8%. We also know that WRI's beta is equal to 1.5, the risk free rate is 4.0%, and the expected market return is 8%. Based on this comparison, what should be APPL's unlevered cost of capital?

    a.

    8.50%
    b.

    10.0%
    c.

    7.50%
    d.

    9.50%
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