Eastman’s vice president for strategic planning, together with members from the business team and manufacturing,are exploring the possibility of building a greenfield plant through a joint venture in Brazil. Eastman would operatethe plant and maintain a 51 percent controlling interest. The plant would support a mature business, and thetechnology to be used is an existing technology already employed by Eastman. No allocated capital or venturecapital would be used. In anticipation of synergies among the joint owners of the business, it is estimated that 20percent of the benefits would result from cost savings, and 80 percent would result from new revenue. Based on theEastman hurdle rate calculator and a base rate of 9 percent, what discount rate should be used for this project?

Eastman’s vice president for strategic planning, together with members from the business team and manufacturing,are exploring the possibility of building a greenfield plant through a joint venture in Brazil. Eastman would operatethe plant and maintain a 51 percent controlling interest. The plant would support a mature business, and thetechnology to be used is an existing technology already employed by Eastman. No allocated capital or venturecapital would be used. In anticipation of synergies among the joint owners of the business, it is estimated that 20percent of the benefits would result from cost savings, and 80 percent would result from new revenue. Based on theEastman hurdle rate calculator and a base rate of 9 percent, what discount rate should be used for this project?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 1lM

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