6 We now return to our Cement example in Chapters 7 and 8. So far, we have...
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6 We now return to our Cement example in Chapters 7 and 8. So far, we have gone with a consensus discount rate and assumed away any complications from leverage. The cement company for which you are carrying out consultancy has no debt funding. However, it wishes to borrow from a multinational bank in Tanzania the total amount required for the loan. If it does this, its debt–equity ratio will increase to 50 per cent.
Assuming that the surveyed discount rates (see the Practical Case Study in Chapter 7) are for the firm prior to any debt increase, how would you now alter the analysis to take into account the increased debt? Use all information available to you, including the financial statements of other relevant companies.
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