19 Basedonitsmarketcapitalization(forequity)of$1,649
millionatthetimeofthisvaluation,weestimatedamarket
debt-to-capital ratio for the firm:
Toestimatethebottom-upbeta,webeganwithanunlevered
betaof0.7527(basedonallpubliclytradedtelecomservices
firms)andestimatedtheleveredbetaforthefirm,usingthe
market values of debt and equity (and a tax rate of zero):
Usingabottom-upbetaof 3 fortheequityandacostofdebt
of 12.8% based on the rating for the firm (CCC), we
estimated a cost of capital for the next five years. (The
risk-free rate was 4.8% and the risk premium used was 4%.)
In stable growth after year 10, we assumed that the beta
woulddecreaseto 1 andthatthepretaxcostofdebtwould
decreaseto8%.Theadjustmentoccursinlinearincrements
from years 6 through 10 as shown in the following table: