Reconsider Problem 33. Due to political unrest in Brazil, the CFO has suggested that either the joint
Question:
Reconsider Problem 33. Due to political unrest in Brazil, the CFO has suggested that either the joint venture be moved to Chile or that the location risk factor for Brazil be increased by adding an additional 0.5 percent risk premium. What discount rate should be used for the project under each of these two cases?
Data from Problem 33
Eastman’s vice president for strategic planning, together with members from the business team and manufacturing, are exploring the possibility of building a greenfield plant through a joint venture in Brazil. Eastman would operate the plant and maintain a 51 percent controlling interest. The plant would support a mature business, and the technology to be used is an existing technology already employed by Eastman. No allocated capital or venture capital would be used. In anticipation of synergies among the joint owners of the business, it is estimated that 20 percent of the benefits would result from cost savings, and 80 percent would result from new revenue. Based on the Eastman hurdle rate calculator and a base rate of 9 percent, what discount rate should be used for this project?
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt