The Cost of Equity -Southwest Airlines



Financial Analysis

Introduction

In this paper, we will discuss the cost of equity of Southwest Airlines and its comparison with other companies within the industry.

Discussion

The assumption that has been taken to calculate the cost of equity of the Southwest Airline is:

Average cost of capital of the firm in the S&P 500 is 10.2 percent

RF = 3, RM =10: [RM - RF] = 7

B: 1.29

=3+ (7-3)*1.29

=8.16 Ans

The investor is expecting 8.16% investing in this company while the average cost of capital is 10.2% which is higher of what the investor was expecting. Since, the Beta reflects the ...