Question
a) Suppose a regression of Tesla stock returns on market factor returns, size factor returns (smb), and book-to-market returns (hml) shows the following factor sensitivities:
a) Suppose a regression of Tesla stock returns on market factor returns, size factor returns (smb), and book-to-market returns (hml) shows the following factor sensitivities:
Market 1.38
SMB 1.00
HML -0.56
What do you think is the appropriate discount rate (or range of discount rates) for Tesla to use for valuing projects? How (if at all) does Teslas debt level (currently about $10 billion) enter into your estimates?
b) Tesla starting offering car insurance for Teslas licensed in California (see attached). If you are evaluating the value of Teslas insurance business, would this change the appropriate discount rate? If so, how, why, and how would you get the right rate?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started