Alpha, Incorporated, has an overall cost of capital of 11.6 percent and a beta of 1.31....
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Alpha, Incorporated, has an overall cost of capital of 11.6 percent and a beta of 1.31. The firm is contemplating a new project that is unrelated to the firm's current operations. Omega Corporation is a firm that operates in the same business as Alpha's new project. Omega has a cost of capital of 10.7 percent. Alpha knows that it will be less efficient than Omega and thus feels that an adjustment of +1 percentage point should be added to the project's discount rate to allow for this inefficiency. What discount rate should be assigned by Alpha to the new project? Alpha, Incorporated, has an overall cost of capital of 11.6 percent and a beta of 1.31. The firm is contemplating a new project that is unrelated to the firm's current operations. Omega Corporation is a firm that operates in the same business as Alpha's new project. Omega has a cost of capital of 10.7 percent. Alpha knows that it will be less efficient than Omega and thus feels that an adjustment of +1 percentage point should be added to the project's discount rate to allow for this inefficiency. What discount rate should be assigned by Alpha to the new project?
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Related Book For
Financial Reporting Financial Statement Analysis and Valuation
ISBN: 978-0324302950
6th edition
Authors: Clyde P. Stickney
Posted Date:
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