The project is somewhat riskier than a typical project for DH, primarily because the plant is being located overseas. Therefore the project will increase the market risk of the firm. Management estimates the investors would require an additional 2% return, for compensation. Calculate the appropriate discount rate using a subjective approach to handling the added risk.

a) Calculate the total market value of each of the capital components:

---> Debt:

Preferred Stock

Common Equity

b) calculate the weighted average cost of capital.

c) Use the corporate valuation model to check your answer to WACC. assume that FCF Will grow at the same rate as The Firm. NOTE: you will have to work backwards through the model to get WACC.

d) what discount rate should DH use?

Answer rating: 100% (QA)

To calculate the appropriate discount rate we will calculate the weightedaverage cost of capital first using the above information Cost of debt after ... View the full answer