Question 2 (20 Marks)

Universal SAOG operating three types of related businesses. The beta estimation and the approximate size of capital invested in each of the three-business segments are given to you below.

Business Type	Beta	Total Market Value of the Capital invested (OMR millions)
A	0.75	255
B	0.25	145
C	1.15	425

The treasury bill rate of the country stands at 5%. The tax rate is 20%. The average cost of debt of the company is 6% before any tax adjustments. Market Value of the equity is OMR 800 m debt is OMR 200m.

The company is planning to invest OMR 500 million in a project. The project is in line with the current operation and involves all thee business activities approximately in the same business combination. The following cashflow estimation is made by the team appointed for project appraisal.

Year	1	2	3	4	5
Cash Flow (OMR millions)	100	150	100	200	250

You have been appointed as a consultant to advise the company and your main role is to assist the team to make appropriate project decision. You are required to;

1. Calculate the weighted average cost of capital suitable to evaluate the project ( 7 Marks)
2. Calculate NPV for the project and provide an expert advice whether the company should proceed with this project (7 Marks

+++++++++++++++++++++++++++++

the market return or equity risk premium is not mention , so you can make assumption and write asuming that ************