Asked by Serenity1
The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of 3 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI’s project.
Debt:
227,000 7.4 percent coupon bonds outstanding, 25 years to maturity, selling for 109 percent of par; the bonds have a $1,000 par value each and make semiannual payments.
Common stock:
769,000 shares outstanding, selling for $95.9 per share; the beta is 1.10.
Preferred stock:
36,900 shares of 6.40 percent preferred stock outstanding, selling for $93.9 per share.
Market:
8 percent expected market risk premium; 6 percent risk-free rate.
Debt:
227,000 7.4 percent coupon bonds outstanding, 25 years to maturity, selling for 109 percent of par; the bonds have a $1,000 par value each and make semiannual payments.
Common stock:
769,000 shares outstanding, selling for $95.9 per share; the beta is 1.10.
Preferred stock:
36,900 shares of 6.40 percent preferred stock outstanding, selling for $93.9 per share.
Market:
8 percent expected market risk premium; 6 percent risk-free rate.
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