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plz reply fast Read the details given below to answer the question 4 and 5 (Marks 2,5 x2 = 5) 2/4 Parco refmery, is considering,
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Read the details given below to answer the question 4 and 5 (Marks 2,5 x2 = 5) 2/4 Parco refmery, is considering, opening of electric charging stations in Pakistan in addition to its existing business of refining and distributing the petroleum products. Because of the large outlays required to get into the business, management is concerned that Parco refinery should earn a proper return. Since the new venture is believed to be sufficiently different from the company's existing operations, management feels that a required rate of return other than the company's present one should be employed. The financial manager's staff has identified several companies (with capital structures similar to that of Parco refmery) engaged solely in the electric charging station business whose common stocks are publicly traded. Over the last five years, the median average beta for these companies has been 1.14. The staff believes that 13 percent is a reasonable estimate of the average return on stocks in general' for the foreseeable future and that the risk-free rate will be around 8 percent. In financing projects, Parco refiery uses 30 percent debt and 70 percent equity. The after-tax cost of debt is 8 percent. 4.On the basis of this information, determine a required rate of return for the project, using the CAPM approach. 5.Is the figure obtained likely to be a realistic estimate of the required rate of return on the projectStep by Step Solution
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