Which cost of capital? Guillaume Tel of Ciments Lafarge was unsure about the legitimacy of applying a discount rate of 10. 5 percent to value the acquisition of Hoang Thach Cement Company. After all, Ciments Lafarge’s company-wide WACC was estimated at 9 percent and the country risk premium applied to Vietnam was set at 365 basis points.

a. How was the 10. 5 percent discount rate derived? How would you justify its use?

b. Should a country risk premium be added to the 10. 5 percent discount rate?

c. What appropriate discount rate should be applied to the valuation of Hoang Thach Cement Company?