Calculate the discount rate coles should use for capital

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Reference no: EM132752099

Coles is evaluating the use of self-checkout technology in all stores. It would have to invest $21 million now and $15 million next year. The company will to spend an additional $8 million now in redundancy packages for staff being let go. This project is forecasted to result in 5 years of salary cost savings. The cost savings start next year at $15 million initially. Each year after, the cost saving diminishes by 20% from the prior year's saving. Coles has 60% of capital financed through equity costing 8%. Capital creditors are willing to accept a 2% discount on what shareholders earn.

Problem a) Calculate the discount rate Coles should use for capital budgeting

Reference no: EM132752099

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