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Choose three firms within the same (non-financial) industry (as defined by Value Line). Ensure that these have similarity regarding their operations, and therefore their asset betas may be comparable being in same industry doesnt always make them similar firms. Make sure that at least one of the firms has debt. Obtain the following data from Yahoo! Finance Statistics: market capitalization (market value of equity), total debt, and total cash (assume its all excess cash). Note: you may have to retrieve data from the Yahoo Financials tab for the interest coverage ratio (EBIT/Interest expense). Choose profitable U.S. based firms for this assignment, as opposed to firms that are not profitable, or foreign firms that might have mixed financial data (e.g., some figures in Japanese Yen and others in U.S. dollars).

For the CAPM cost of equity: Use the current 10-year Treasury bond YTM for the riskless rate r_F (obtain from Yahoo Finance, Bloomberg, or other websites), the equity Beta from Value Line, and a 5.5% market risk premium [r_M-r_F].

For the firms cost of debt r_D: Estimate the current Moodys/S&P bond rating from the table below. VL usually lists the Total interest coverage ratio (EBIT/Interest expense) for most firms. The coverage ratio is widely viewed as accurate for forecasting the default risk. From the table below choose the bond rating that matches the firms interest coverage ratio. The firms cost of debt is then obtained by using the spread listed below (spread listed below is the risk premium or markup over the 10-year Treasury bond YTM, i.e. the riskless rate). Large firms below are defined as a market value of equity in excess of $5 billion USD.

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