Quick-Link Has Debt Outstanding with a Market Value of $200

question 46

Essay

Quick-Link has debt outstanding with a market value of $200 million,and equity outstanding with a market value of $800 million. Quick-Link is in the 34% tax bracket,and its debt is considered risk free. Merrill Lynch has provided an equity beta of 1.50. Given a risk free rate of 3% and an expected market return of 12%,calculate the discount rate for a scale enhancing project in the hypothetical case that Quick-Link is all equity financed.

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Definitions:

Narrow Span of Management

An organizational structure where managers supervise a small number of subordinates, allowing for more detailed oversight and personalized management.

Proximity

The state of being near or close in space, time, or relationship, often impacting decision-making or behavior in various contexts.

Matrix Structure

A structure that sets up teams from different departments, thereby creating two or more intersecting lines of authority; also called a project management structure.