Consider a large FTXX Oil Company. It has three divisions: retail, refinery, and oil exploration$/$extraction

These divisions have different risks. Currently the company has all its operations located in Texas only.

The firm is financed with $20\%$ debt and $80\%$ equity. The WACC of the overall company is $25\%$

What is true?

I. Suppose the company is considering a new exploration$/$extraction project in Texas,

and it will finance the project with $20\%$ debt and $80\%$ equity.

Then, for such project, the discount rate has to be exactly $25\%.$

II$.$ Suppose the company is considering its first exploration$/$extraction project in Venezuela

and it will finance the project with $20\%$ debt and $80\%$ equity.

Then, for such project, the required rate of return is likely to be higher than that for

the exploration$/$extraction project in Texas.

II only

I and II

None of the above.

I only