Your boss at the mid-sized public corporation where you area senior analyst just sent you a copy of an online article from the Association for Financial Professionals (see attached article). She says, “See, I told you we didn’t need to bother with figuring out our cost of capital for the new project, a lot of firms don’t use project-specific CoC”. Review the article and come up with a response to her. This new project that you are analyzing with her involves a new line of business for your firm. Not only is it new technology, but it is for a new customer base. Items to consider in your response should include:
Arguments for (or against) determining a project-specific cost of capital.
Suggestions for how to determine that project-specific cost of capital.
Suggestions for other risk-adjustments that might be made.·
Risks (or potential benefits?) of not using a discount factor that is appropriate for this specific venture.
Sample Solution
