Maria D'souza intended to develop her business by initiating a brand new product line of frozen foods. She needed to estimate the attractiveness of the brand new expansion by estimating net present value (NPV) of the expected cash flows. Her primary concern was to find a suitable discount rate to be applied to cash flows to assess the NPV of the project.
The consultant friend of D'souza asked her to examine cost of capital of similar businesses operating in exactly the same industry. The basic principle in this instance is the fact that firms in the exact same industry often have similar customers, operations and assets; so they have business risks that are similar and should have similar costs of capital.
PUBLICATION DATE: November 22, 2012 PRODUCT #: W12324-PDF-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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