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Question 9.S-TQ7: What difficulties may be faced by analysts seeking to use th...

What difficulties may be faced by analysts seeking to use the capital asset pricing model to determine a discount rate for foreign direct investment?

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The following difficulties may be encountered by analysts:

– How can they determine an appropriate value of beta?

– With reference to which market should it be calculated?

– What value of the market premium should be used?

– Which risk-free rate should be selected?

– If the company’s share price changes, should the cost of capital be recalculated?

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