You are analyzing Tiffany, an upscale retailer and find that the regression estimate of the firm's beta is 1; the standard error for the beta estimate is 0.25. The company has a debt/assets ratio of 20% and is subject to 40% tax rate. Assume also that risk free rate is 6% and the market risk premium is 5.5%.
1- what is the 95% confidence interval for the estimated beta?
a- -0.25 to 2.25
b- 0 to 2
c- 0.25 to 1.75
d- 0.5 to 1.5
e- 0.75 to 1.25
2- Assume Tiffany is rated BBB and that the default spread for BBB rated firm is 1% above the risk free, what is the company's cost of capital?
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