The Reliance Refinery and Petrochemical project is a large scale petrochemical Special Purpose Vehicle in Jamnaga, India. The project proposed building a 580,000 barrel per day refinery and 900,000 tons per year polypropylene petrochemical complex. The project cost is estimated to be $6.4 billion. The project was funded with a group of syndicated loans totaling $4.0 billion financed at an average of 7.25%. In addition, a two stage independent public offering provided for shares in the project and raised $2.4 billion in stock financing in the project. Assume the U.S. Treasury Bill rate was 3.75% at the time of the public offering and that the average market rate of return on stocks was 9.0%, and the beta on the companys stock is 1.2. Assume also that the firm faces a marginal tax rate of 35%.

Using this information, calculate the following:

1. What is the capital structure (percent debt and percent equity) of this proposed project?

2. Using the capital asset pricing model, calculate the cost of equity capital.

3. What is the cost of debt capital?

4. Calculate the weighted average cost of capital (WACC).

5. What would be the (WACC) if the beta on the companys stock is .80?

6 Using the WACC, what is the net present value of cash flows in Table 1.

Table 1.0: Annual project cash flow in billions of dollars

1	2	3	4	5	6	7	8	9	10
0.5	.75	1.3	1.1	1.1	1.2	2.2	2	1.7	1.5