The risk of the project determines the discount rate, and in this case Geothermal's WACC is more reflective of the risk of the project in question. The proper discount rate, therefore, is not 12.2%.
Executive Fruit should use the WACC of Geothermal, not its own WACC, when evaluating an investment in geothermal power production. The proper WACC to use is 11.3%.
What does investment mean?
Investments are assets or items acquired for the purpose of income or capital appreciation. Valuation refers to the increase in value of an asset over time. When a person purchases a commodity as an investment, the intention is not to consume the commodity, but to use it to create wealth in the future.
What are the investment benefits?
Investing is an effective way to invest money and potentially build wealth. With smart investments, money can outperform inflation and increase in value. The huge growth potential of investments is largely due to the power of compound interest and the risk/return trade-off.
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