subject : corporate finance

Instructions: For each question, please read the argument carefully and discuss why you agree or disagree with it. You must assess the argument itself rather than other information such as occupations of speakers. Your answer is not subject to any word limit, but a short and concise answer is preferred.

Doe family owns a firm (DEF inc.), which accounts for more than 90% of their household wealth. To protect the management philosophy of the founder, the owners are not willing to sell the shares to outsiders. An investment banker says, The cost of capital of a comparable firm, which has the same leverage ratio, is 9%. DEF inc., however, must use higher cost of capital in the project valuations because, unlike DEF inc., the comparable firm is owned by a number of investors who can diversify their portfolio. Do you agree with the investment banker? Explain why.