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Frozen Food Products: Cost of Capital

Reference: IVEY-9B12N028-E
Year: 2012
Number of pages: 6
Geographic Setting: India
Publication Date: Nov 22, 2012
Fecha de edición: Nov 20, 2012
Source: Ivey Business School (Canada)
Type of Document: Case
Industry Setting: Accommodation & Food Services;

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Description

Maria D’souza planned to expand her business by introducing a new product line of frozen foods. She wanted to estimate the attractiveness of the new expansion by estimating net present value (NPV) of the expected cash flows. Her main concern was to find a suitable discount rate to be applied to cash flows to ascertain the NPV of the project.D’souza’s consultant friend asked her to analyze cost of capital of similar companies operating in the same industry. The basic principle in this case is that firms in the same industry often have similar customers, operations and assets; therefore they have similar business risks and should have similar costs of capital.

Learning Objective

·To ascertain cost of capital for a new project by using cost of capital of existing firms operating in the same business. ·The case can be used in a MBA level finance course.

Keywords

Capital structure cost of capital discounting rate India net asset value