Sharma Industries wishes to select the best of two possible investment projects - Gulf Oil and Esso. The firm observes that the risk-free rate is 7% and the market rate of return is 12%. The risk adjusted discount factor (beta) of Gulf Oil is 1.2 while the beta for Esso is 1.4. i. Gulf Oil Initial Investment (CF) $70,000 Year (1) ii. 1 2 3 4 $30,000 $30,000 $30,000 $30,000 Esso $78,000 Cash Flows (CF) $22,000 $32,000 $38,000 $46,000 Calculate the cost of capital for both Gulf Oil and Esso using the information provided above. (4 marks) Using the cost of capital, calculate the Net Present Value (NPV) for the investments in Gulf Oil and Esso. (6 marks) Which investment opportunity should Sharma Industries select? (2 marks) Using a diagram, distinguish between diversifiable and non-diversifiable risk. (3 marks)