Reconsider Problem 33. Due to an economic downturn, one of the joint venture partners has withdrawn from
Question:
Reconsider Problem 33. Due to an economic downturn, one of the joint venture partners has withdrawn from the project. The remaining partners have agreed to redistribute the withdrawing partner’s share. The result for Eastman is an increase in ownership from 51 percent to 82 percent. What discount rate should be used for the project?
Data from Problem 33
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 operate the plant and maintain a 51 percent controlling interest. The plant would support a mature business, and the technology to be used is an existing technology already employed by Eastman. No allocated capital or venture capital would be used. In anticipation of synergies among the joint owners of the business, it is estimated that 20 percent of the benefits would result from cost savings, and 80 percent would result from new revenue. Based on the Eastman hurdle rate calculator and a base rate of 9 percent, what discount rate should be used for this project?
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt