You've just done some analysis on a publicly traded company and some of your key findings are below. The company; 1. Has a WACC of 9%, and a tax rate of 25% 2. Has a Debt to Enterprise Value ratio of 60% 3. Pays no dividends and has no plans to pay dividends 4. Expects the risk-free rate to be 1% 5. The credit rating that would imply it is considered a High Yielding debt security 6. The company is in a mature industry 7. Is in a situation where if they were to raise additional capital, it would likely do so through an equity offering Given these considerations, select the most appropriate discount rate to use for this company? 4% 5% 10% 20%
You've just done some analysis on a publicly traded company and some of your key findings are below. The company; 1. Has a WACC of 9%, and a tax rate of 25% 2. Has a Debt to Enterprise Value ratio of 60% 3. Pays no dividends and has no plans to pay dividends 4. Expects the risk-free rate to be 1% 5. The credit rating that would imply it is considered a High Yielding debt security 6. The company is in a mature industry 7. Is in a situation where if they were to raise additional capital, it would likely do so through an equity offering Given these considerations, select the most appropriate discount rate to use for this company? 4% 5% 10% 20%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You've just done some analysis on a publicly traded company and some of your key
findings are below. The company;
1. Has a WACC of 9%, and a tax rate of 25%
2. Has a Debt to Enterprise Value ratio of 60%
3. Pays no dividends and has no plans to pay dividends
4. Expects the risk-free rate to be 1%
5. The credit rating that would imply it is considered a High Yielding debt security
6. The company is in a mature industry
7. Is in a situation where if they were to raise additional capital, it would likely do
so through an equity offering
Given these considerations, select the most appropriate discount rate to use for this
company?
4%
5%
10%
20%
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