You have recently been hired by Swan Motors, Inc. (SMI), in its relatively new treasury management department. SMI was f

[answerhappygod]

You have recently been hired by Swan Motors, Inc. (SMI), in its
relatively new treasury management department. SMI was founded 8
years ago by Joe Swan. Joe found a method to manufacture a cheaper
battery with much greater energy density than was previously
possible, giving a car powered by the battery a range of 700 miles
before requiring a charge. The cars manufactured by SMI are
midsized and carry a price that allows the company to compete with
other mainstream auto manufacturers. The company is privately owned
by Joe and his family, and it had sales of $97 million last
year.
SMI primarily sells to customers who buy the cars online,
although it does have a limited number of company-owned
dealerships. Most sales are online. The customer selects any
customization and makes a deposit of 20 percent of the purchase
price. After the order is taken, the car is made to order,
typically within 45 days. SMI’s growth to date has come from its
profits. When the company had sufficient capital, it would expand
production. Relatively little formal analysis has been used in its
capital budgeting process. Joe has just read about capital
budgeting techniques and has come to you for help. For starters,
the company has never attempted to determine its cost of capital,
and Joe would like you to perform the analysis. Because the company
is privately owned, it is difficult to determine the cost of equity
for the company. Joe wants you to use the pure play approach to
estimate the cost of capital for SMI, and he has chosen Tesla
Motors as a representative company. The following questions will
lead you through the steps to calculate this estimate.
1. To estimate the cost of equity for Tesla. GO to
Finance.yahoo.com and enter the ticker symbol "TSLA". Follow the
various links to find answers to the following questions: What is
the most recent stock price listed for Tesla? What is the market
value of equity, or market capitalization? How many shares of
stocks does Tesla have outstanding? What is the beta for Tesla? Now
go back to Finance.yahoo.com and follow the "markets" and "US
Treasury Bonds Rates" links. What is the yield on 3-month Treasury
bills? Using a 7 percent market risk premium, what is the cost of
equity for Tesla using the CAPM?
2. Go to www.reuters.com and find the list of competitors in the
industry. Find the beta for each of these competitors and then
calculate the industry average beta. Using the industry average
beta, What is the cost of equity? Does it matter if you use the
beta for Tesla or the beta for the industry in this case?