Omega Engineering Inc. has an opportunity to invest $10,000,000 in a new engineering remote control system for

Question:

Omega Engineering Inc. has an opportunity to invest $10,000,000 in a new engineering remote control system for offshore drilling platforms. Financing will be split between common stock sales ($5,000,000) and a loan with an 8% per year interest rate. Omega's share of the annual net cash flow is estimated to be $1.35 million for each of the next 5 years. Omega is about to initiate CAPM as its common stock evaluation model. Recent analysis shows that it has a volatility rating of 1.22 and is paying a premium of 5% on its common stock dividend. The U.S. Treasury bills are currently paying 4% per year. Is the venture financially attractive if the MARR equals

(a) The cost of equity capital

(b) The WACC?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...