Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?

A listed publishing company owns a subsidiary company whose business activity is training.

It wishes to dispose of the subsidiary company.

The following information is available:

The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary’s free cashflows.

Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?
A . A WACC that reflects the gearing of the publishing company and the asset beta of a listed company that provides training activities.
B . A cost of equity that reflects the asset beta of a listed company that provides training activities.
C . A WACC that reflects the gearing of the subsidiary company and the asset beta of a listed company that provides training activities.
D . A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.

Answer: A