Assuming that Project Rare/Project Earths would be financed entirely by an equity raising, what would be an appropriate discount rate to use and why?

Your colleague from the equity research department tells you that Seven Group is considering diversifying with a small investment in one of two different rare earths (useful for renewable energy technology)mining projects within Australia. The two competing investments are codenamed Project Rare & Project Earths. The cash flows for each project look like this, in thousands of
dollars:

Transcribed Image Text:

Project Rare Project Earths (100,000) $ (100,000) 55,000 $ 46,000 55,000 $ 46,000 55,000 $ 46,000 55,000 $ 46,000 $ 46,000 Year 0 $ Year 1 $ Year 2 $ Year 3 $ Year 4 $ Year 5 Project Rare Project Earths (100,000) $ (100,000) 55,000 $ 46,000 55,000 $ 46,000 55,000 $ 46,000 55,000 $ 46,000 $ 46,000 Year 0 $ Year 1 $ Year 2 $ Year 3 $ Year 4 $ Year 5

Answer rating: 100% (QA)

The appropriate discount rate to use for Project Rare and Project Earths would be the weighted avera... View the full answer