You are the manager of the petroleum refining division of a large international conglomerate. You are considering investing in building your own oil rig so that you don’t have to negotiate with suppliers for inputs for your refineries. Your company’s WACC is 10%. You are also aware of an all-equity company that exclusively operates oil rigs. The oil rig company’s equity beta is 1.2, the return on Treasury Bills is 4%, and the market risk premium is 6%. Estimate your project’s cost of capital. A. 10.0% B. 12.1% C. 11.2% D. 10.8%
You are the manager of the petroleum refining division of a large international conglomerate. You are considering investing in building your own oil rig so that you don’t have to negotiate with suppliers for inputs for your refineries. Your company’s WACC is 10%. You are also aware of an all-equity company that exclusively operates oil rigs. The oil rig company’s equity beta is 1.2, the return on Treasury Bills is 4%, and the market risk premium is 6%. Estimate your project’s cost of capital. A. 10.0% B. 12.1% C. 11.2% D. 10.8%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
You are the manager of the petroleum refining division of a large international conglomerate. You are considering investing in building your own oil rig so that you don’t have to negotiate with suppliers for inputs for your refineries. Your company’s WACC is 10%. You are also aware of an all-equity company that exclusively operates oil rigs. The oil rig company’s equity beta is 1.2, the return on Treasury Bills is 4%, and the market risk premium is 6%. Estimate your project’s cost of capital.
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education