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What discount rate should honest abes use

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Question 1: Honest Abe's is a chain of furniture stores. Integral designs is a furniture maker and a supplier off honest Abe's. Honest Abe's has a beta of 1.38 as compared to integral designs Bada of 1.12. Both firms carry out no debt, i.e., are 100% equity financing. The risk free rate of return is 3.5 percent and the market risk premium is 8%. What discount rate should honest Abe's use if it considers a project that involves the manufacturing of furniture?

Reference no: EM132513875

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