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What discount rate should honest abe use

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Honest Abe's is a chain of furniture retail stores. Integral designs as a furniture maker and a supplier to honest Abe's. Honest Abe's has a beta of 1.38 as compared to integral designs beta of 1.12. Both firms carry no debt, ie., 100% equity financed. The risk-free rate of return is 3.5% and the market risk premium is 8%.

Question 1: What discount rate should Honest Abe's use if it is considers a project that involves the manufacturing of furniture?

Reference no: EM132513873

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