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Cost of capital

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In light of Time Warner's current operations, as well as trends in the national economy and the organization's industry, what changes, if any, would you recommend in Time Warner's approach towards determining its cost of capital? How would you adjust the discount rate for riskier projects? Why?

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The solution explains the changes that may need to be made in determining the cost of capital of Time Warner

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Time Warner is a media and entertainment business and operates in five segments - AOL, Cable, Filmed Entertainment, Networks, and Publishing. If we look at these five segments, while they may be in the same line, the segments are exposed to different risks. Currently publishing is going through a bad phase with readership falling and most people looking at online sources for their daily requirement. Filmed entertainment depends on blockbusters which do not come every day. Time Warner may produce a number of films and only some of them may become blockbusters. AOL, which was an acquisition made earlier, did not live up to expectations and even now monetizing the operations is proving ...

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