All of this leaves you in something of a quandary. You need to come up with estimates of SDI’s costs of debt and preferred stock, and with an estimate of “the marginal investor’s” expected return to use as the cost of equity. Then you must explain all this to the SDI executives, and give them your estimate of the cost of equity along with your estimates of the costs of debt and preferred stock. Without reasonable estimates of these values, the company will not be able to develop accurate values for EVA or a good cost of capital estimate for evaluating proposed capital expenditures. Maria Gonzales and Bob Wilkes appreciate the difficulty of your task, but all of you know that the estimates must be made.