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Discount rate of Target; compare to two other companies

You can choose a company as the company will be used for the rest of the assignment

Your task for this module is to apply the concept of present value to your chosen SLP company. Upload a two to three page paper answering the following questions:

1. What factors do you think determine the discount rate of your SLP company?

2. Do you think your SLP company should have a higher or lower discount rate than the average publicly traded corporation? Or a higher or lower discount rate than other companys in the same industry as your SLP company?

3. Pick two other companies in the same industry as your SLP company. One should be one that you think should have a lower discount rate than your SLP company. The other should be one that you think should have a higher discount rate. Explain your reasoning as to why these two companies should have a higher/lower discount rate than your SLP company

Solution Preview

Your task for this module is to apply the concept of present value to your chosen SLP company. Upload a two to three page paper answering the following questions:

1. What factors do you think determine the discount rate of your SLP company?

I have selected Target as the company for this research. Discount rate or WACC (Weighted Average Cost of Capital) is an expression of this cost and is used to see if certain intended investments or strategies or projects or purchases are worthwhile to undertake. (Valuebasedmanagement, 2009)

It is the weighted average cost of all the funds of the organization such as debt and shares. It would consider the following factors:
-Risk appetite of the management
- Future Capital requirements
-Degree of operating leverage
-Economic scenario
-State of business cycle
-Cost of funds

http://www.valuebasedmanagement.net/methods_wacc.html. It is a snapshot of the page as it appeared on 26 Apr 2009 06:01:03 ...

Solution Summary

The discount rate of target is examined. Target is compared to two other companies. The factors which determine the discount rate for the SLP company is given.

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