Question 2-20 marks Etana Inc. is a SPV set up for the purposes of exploring an oil deposit off the southern shores of Barbados. Recently a deposit was discovered in a nearby region and Etana is considering exploration. The following information relates to the capital structure currently in place for Etana Inc.: Long-term debt (8.5% yield to maturity) Preferred shares ($150 par value, $16.50 annual dividend) Common shares (550,000 shares outstanding) $22,000,000 45,000,000 33,000,000 Currently, Etana Inc. can raise long-term debt at an annual interest rate of 7.5%. The current market prices of Etana Inc.'s shares are $170 per preferred share and $70 per common share. Common dividend per share is $6.50 and is expected to grow at a rate of 2.5% per year. Required: a) Assuming the current capital structure will remain constant and that Etana Inc. has an income tax rate of 40%, what is the weighted average cost of capital that Etana Inc. should use to appraise the investment opportunity? b) Briefly discuss two items that may affect the discount rate when considering investment appraisal D Po r Po D. r-8 D r= + 8 Po Dn= D. *(1+8)" WACC = Wie*RE + W.p.*Rp. + W.D*Rp*(1-t.)