If Lex had no debt in its capital structure, what would its cost of capital be? If Lex operated with essentially no leverage in its capital structure and then added a moderate amount of debt, how would this affect its total value?

Should Lex use a single corporate-wide discount rate or multiple discount rates (one for each line of business) with which to evaluate investment projects? Please explain. (If you recommend using multiple discount rates, what rate would you use for Automotive Distribution investments? What rate would you use for Contract Hire investments? What rate would you use for Property (real estate) investments?)

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Cost of Capital with no debtIf Lex had no debt in its capital structure its cost of capital would be equal to the cost of equity as the company would ... View the full answer