215.2
2. Track Town Pizza is thinking of franchising.
You notice that Domino's Pizza has an equity beta of 1.2, but
that one third of its capital structure is debt and its debt beta
is 0.21. The risk free rate is 4% and the expected return on the
market is 12%. What discount rate should track town use for its
capital budgeting decision? (2 pts)
There are two steps to this kind of
problem. First,
figure out the beta for the Domino's assets. Then calculate the
appropriate discount rate given this level of risk.
Discount Rate: 10.96%