You have been asked to value the chemical division of a multi

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You have been asked to value the chemical division of a multi business conglomerate and have been provided with the cash flows for the division. What discount rate would you use to discount this cash flow? Year 1 Year 2 Year 3 Earnings before interest and taxes (1-­‐ tax rate) $100 $105 $110 -­‐ Reinvestment in chemical business $20 $22 $25 Cash flow $80 $83 $85 Question 7 options: The cost of equity of the company The cost of capital of the company The cost of equity for the chemical business The cost of capital for the chemical business None of the above

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