You are the assistant to Simone Nain who is the CEO and board member of Simplicity, a small private company making a single product and mainly owned by the Nain family that has no diversified assets. Nain is aware that some family board members are ignorant of how capital decisions are made and has asked you to provide a short note (approximately 1000 words) on this matter using the broad headings:
* How does the decision to invest in a project at Simplicity depend on the “discount rate”?
*Which procedure(s) are best for evaluating capital projects at Simplicity?
* Which principle should underlie the choice of a discount rate for Simplicity?
Some family members have been approached by representatives of Complex Solutions plc. , a large publicly listed corporation, owned by diversified investors, that carries no debt. Complex Solutions are interested in buying the Simplicity business. Nain is however puzzled because the price Complex Solutions plc is offering suggests that they are using a much lower discount rate than the family firms own current estimate of the appropriate discount rate for Simplicity. Nain is concerned that this might mean that the discount rate used by the company at present is too high. You have been asked to write a note (approximately 500 words) to explain whether Simplicity, if it refuses the offer from Complex Solutions plc, should make future decisions, as a private family company, based on a lower discount rate than their current one?
You may, if you wish, recommend and very briefly summarise (within the word limit) ONE useful SHORT article to increase understanding of one of the topics of interest; if so please ensure that it is highly relevant to the topic and embed the link in your report. There is no need for further references and if any are used, they should be kept to a bare minimum and only included if they are totally relevant and essential to some point, and if you have fully mastered yourself and read carefully the work being referenced.