Private Company Valuation: Market-Based Approach
Using the build-up approach, the equity discount rate for Teleworks is _closest_ to:
Incorrect.
This answer accounts for either the risk-free rate or the company-specific risk twice.
That's it!
Using the build-up approach, the equity return requirement is calculated with the risk-free rate, equity risk premium (ERP), size premium (SP), an industry risk premium (IP), and a specific-company risk premium (SCRP) as:
$$\displaystyle r_e = r_f + \text{ERP} + \text{SP} + \text{IP} + \text{SCRP} $$
$$\displaystyle 0.04 + 0.09 + 0.07 + 0.04 = 0.24 = 24 \% $$.
Incorrect.
This answer either doesn't account for the risk-free rate or doesn't account for the company-specific risk.
20%.
24%.
28%.
