23.15

15. Compaq is in the process of buying Dell. You read in Value Line that Compaq's equity beta is 1.4 and Dell's is 1.5. The risk free rate is 3% and the expected return on the market is 12%.

1. You make the assumption that both Compaq and Dell have no debt. What discount rate should Compaq use to determine the purchase price? (5 pts)
   
2. If your assumption is wrong, will your discount rate be too high, too low, or correct? Why? (5 pts)
   

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