A company used a 14% nominal discount rate toevaluate a new project. However, their advisor said that
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Question:
A company used a 14% nominal discount rate toevaluate a new project. However, their advisor said that the normal discount rate for this industry is 12% but because of the different characteristics of the market, the higher discount rate is appropriate.
Question: Should the company use a different discount rate from other companies in that industry? If so, why, and what discount rate should they use?
(Hint: It is required to mention systematic risk and rate of return. Which rate will systematic risk be close to?)
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