An oil refinery company Genesis Corp. plans to add offshore oil exploration and chemical

engineering to its business portfolio. As part of the new initiative, Genesis is looking to acquire Ocean

Ranger, an exploration company, and Elemental Point, a chemical engineering firm. Both targets

are privately held firms.

Required: Suppose that investors require an $18\%$ return and a $12\%$ return, respectively, for oil

exploration firms like Ocean Ranger and chemical engineering firms like Elemental Point. Which of

the following statements is correct? Choose only one.

If Genesis applies a discount rate of $10\%$ for both Ocean Ranger and Elemental Point, it will end up underestimat$-$

ing the values of both firms.

If Genesis applies a discount rate of $15\%$ for both Ocean Ranger and Elemental Point, it will underestimate Ocean

Ranger and overestimate Elemental Point.

If Genesis applies a discount rate of $20\%$ for both Ocean Ranger and Elemental Point, it will end up overestimating

the values of both firms.

If Genesis applies a discount rate of $15\%$ for both Ocean Ranger and Elemental Point, it will overpay for Ocean

Ranger and underpay for Elemental Point.