I’m trying to study for my Business course and I need some help to understand this question.
Case Study: Cost of Capital for Swan Motors (Due June 20)
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. 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.
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. Therefore, Joe wants you to use the pure play approach (an
approach used to estimate the cost of capital of private companies, which involves examining other public
and single focused companies) 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. Most publicly traded corporations are required to submit 10K (annual) reports to the SEC detailing