Question about NPV and WACC
Hi my name is Luis and I have this question for my finance class.
I have this question and i have searched for hours so I came here to see if anyone can help me answer this.
How would the discount rate and the NPV of a project change with the firm being sued by a Human RIghts Organization and why?
I already thought about it, and the discount rate would go up and the Npv down, now I just would like to know all the implications of this sueing... My though process so far is, with the company being sued it's image is tainted and so less investors would want to invest on the company making it's NPV fo down. I Just don't understand how can that make changes in the discount rate (using WACC).
Please some help.
Thank You!
Luis Vicente
Suit = uncertainty = risk = higher WACC.
The reason its discount rate would change is because its beta would go up (higher risk relative to market). Higher discount rate = lower NPV
Lawsuit---> risk up ---> cost of equity up ---> WACC up ---> NPV down ---> A+
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