Question:
Say for example, if your company has the following characteristics:
Book Value of Equity: 500M
Market Value of Equity (number of shares x current stock price): 5 Billion
Book Value of Debt: 1 Billion (market value assumed the same)
Interest Rate on Debt: 12%
Tax Rate: 40%
Beta: 1.4
S&P RRR: 12%
10-year Treasury Bond 4%
Does anyone know what discount rate would you apply to your investment projects?
Answers:
No! You must know something about the projects (and the industry) to determine the proper discount rates.
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