Based on the below, I get 23.4% as the discount rate.
We utilize the CAPM formula and add an alpha to modify for company-specific risks.
Ignore the industry risk as it is represented as part of Beta already.
R(i) = R(f) + ß(R(m) - R(f)) + R(s) + R(c)
where R(i) = Company Rate and R(s) = Size premium and R(c) = company specific
R(i) = 5 + 1.3(13-5) + 5 + 3
= 23.4%
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Michael Henry
Controller
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Original Message:
Sent: 04-20-2021 07:59 AM
From: Prajnya Shetty
Subject: Calculate the CAPM.
Hi All,
Can anyone answer the below question with explanation.
Thanks in Advance.
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Prajnya Shetty
GL Executive in XPO Logistics
India.
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