Q1. You are a senior manager at an automobile company. In an effort to offer a full menu of auto and gas products, your firm is considering an oil exploration project. The CEO has selected the manager of the companys truck division to oversee the project, and has asked you to evaluate whether the company should proceed with the exploration or not.

To help you evaluate the project, your associate gives you the following information:

Company	Equity beta	D/(D+E)
General American Oil	1.6	0.05
Lousiana Land & Exploration	1.2	0.20
Mesa Petroleum	2.6	0.15
Murphy Oil	1.7	0.30
Natomas Oil	1.8	0.45
Oceanic Exploration	1.5	0.24
Superior Oil	1.3	0.13

1. Should you also ask the associate for similar information on car manufacturers? On truck manufacturers? On automobile companies? Why or why not?
2. Based on the information you have available, calculate an appropriate discount rate assuming for the project that risk free rate is 4%, the expected market return is 8%, and the corporate tax rate is 20%. Assume that the oil exploration project is 84% equity financed.(please show me the detail calculation and steps. )(50 points)

Note: you can assume cost of debt (return on debt) = risk free rate.