Using a Scenario Approach,an Analyst Finds That the Estimated Value

Using a scenario approach,an analyst finds that the estimated value of a company is $800.The business-as-usual scenario forecasts a cash flow of $40 starting next year and then growing at 6 percent forever.The cost of capital in that scenario is 10 percent.Given this information,what is the implied risk premium to add to the cost of capital to make the analyst's results consistent with the country risk premium discounted cash flow (DCF ) approach?

A) 0.80 percent.
B) 1.00 percent.
C) 1.20 percent.
D) 1.25 percent.

Correct Answer:

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