Honest abe’s is a chain of furniture retail stores. integral designs is a furniture maker and a supplier to honest abe’s. honest abe’s has a beta of 1.38 as compared to integral designs' beta of 1.12. both firms carry no debt, i. e., are 100% equity-financed. the risk-free rate of return is 3.5 percent and the market risk premium is 8 percent. what discount rate should honest abe's use if it considers a project that involves the manufacturing of furniture?

The  discount rate should Honest Abe's use if it considers a project that involves the manufacturing of furniture is 12.46%

Explanation:

In this question, w e use the Capital Asset Pricing model method, which is shown below:

Expected return = Risk-free rate of return + Beta × market risk premium

                           = 3.5% + 1.12 × 8%

                            = 3.5% + 8.96%

                            = 12.46%

In this we use the Integral design beta not the Honest Abe beta

watch how they communicate and watch how they handle their free time

hope it !