Lycera Corporation (NYSE:LYC) was evaluating several small capital projects but didn't know what discount rate to...

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Lycera Corporation (NYSE:LYC) was evaluating several small capital projects but didn't know what discount rate to use. It had the following data: • The 10-year Treasury was trading at about 1.9%. • The tax rate is 21% • LYC's stock price was $49/share, and it had 9 million shares outstanding • According to its investment banker, LYC stock (equity) had a levered beta of 1.65. • • Three years ago, LYC issued 20-year bonds with a coupon of 6.5%, but the current yield to maturity on the bonds was about 5.5%, giving the bonds a market value of $190 million. Ibbotson Associates indicated that, for the past 50 years, equity returns exceeded bond returns by 6.0%. What discount rate should LYC use? Lycera Corporation (NYSE:LYC) was evaluating several small capital projects but didn't know what discount rate to use. It had the following data: • The 10-year Treasury was trading at about 1.9%. • The tax rate is 21% • LYC's stock price was $49/share, and it had 9 million shares outstanding • According to its investment banker, LYC stock (equity) had a levered beta of 1.65. • • Three years ago, LYC issued 20-year bonds with a coupon of 6.5%, but the current yield to maturity on the bonds was about 5.5%, giving the bonds a market value of $190 million. Ibbotson Associates indicated that, for the past 50 years, equity returns exceeded bond returns by 6.0%. What discount rate should LYC use?

Answer rating: 100% (QA)

Based on the information provided Lycera Corporation LYC should use a discount rate of approximately ... View the full answer