What is the appropriate discount rate

Assignment Help Financial Management

Reference no: EM131549429

No excel needed, do explain a little how came up with this answer

Forty Acre Inc. (FA), a U.S.-based multi-national company, has screened several acquisition targets in Malaysia. FA has identified a Malaysian company, KL Rubber, which would provide a good strategic fit for FA. The tax rate on the firm's earnings is expected to be 35%. The exchange rate is currently $.2554/MYR. Inflation is expected to average 7.5% in Malaysia and 2.0% in the U.S. The risk-free rate in the U.S. is 3.25%. Assume a 6.0% market risk premium. FA has estimated the beta this investment is 1.1. For this project, FA plans to borrow MYR 250 million on a revolving loan at 9.5% interest. The investment will require another MYR 200 million in equity capital. What is the appropriate discount rate that KL Rubber should use to evaluate this investment?

Reference no: EM131549429

Questions Cloud

How many stocks are needed for delta hedging : Current stock price is $50 and its volatility is 40%. How many stocks are needed for Delta hedging? Assume risk-free rate is 10%.

European call futures option when the futures price : Calculate the value of a 6-month European call futures option when the futures price is $21,

European call option on the index with the same strike price : What must be the value of a 6-month European call option on the index with the same strike price?

Consider two different foreign subsidiary : Consider 2 different foreign subsidiary of inc. 1st subsidiary Mills trees in Canada and ships entire product to Georgia Pacific u.s. the second owned by parent

What is the appropriate discount rate : Forty Acre Inc. (FA), a U.S.-based multi-national company, What is the appropriate discount rate that KL Rubber should use to evaluate this investment?

The dividend is expected to grow at a rate : The dividend is expected to grow at a rate of 4% and investors’ required rate of return for Symantec stock is 8% per year.

Sell packages of firecrackers at an upcoming parade : The Artful Dodger has decided to sell packages of firecrackers at an upcoming parade. How many packages will the Dodger have to sell to break even?

The net payment at that date will be : Boeing has entered into a 10 year interest rate swap with Bank America with a notional principal of $500 million. The net payment at that date will be:

Presented a proposal for a project : You are presented a proposal for a project.

User Account

All Pages