Question
Sinopec is a Chinese company that acquires a license for oil extraction in Russian Siberia. The cost of acquisition is $ 27 million. Sinopec has
Sinopec is a Chinese company that acquires a license for oil extraction in Russian Siberia. The cost of acquisition is $ 27 million.
Sinopec has debt-to-equity ratio of 1.5. Annual cash flow is estimated at $5 millions annually for the 8-years period. The liquidation of the equipment would derive $ 3 million. The interest rate is 12%, tax rate is 25%. The risk-free rate is 6%, unleveraged beta equals to 0,9; market premium is 7%.
a. Estimate the discount rate for an investment project
b. Calculate the NPV of an investment project
c. What investment decision should be made?
Step by Step Solution
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Step: 1
To estimate the discount rate for the investment project we can use the weighted average cost of cap...
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International Accounting
Authors: Timothy Doupnik, Hector Perera
3rd Edition
978-0078110955, 0078110955
