Valero Energy Corp. has decided it needs additional refining capacity to meet demand. Rather than build a new refinery, corporate officers have identified two existing refineries that are for sale: one in Corpus Christi and the second in Beaumont. The refinery in Corpus is relatively new and is well equipped with the latest refining technologies and innovations. The refinery in Beaumont is older and will require extensive retrofitting to make it cleaner and more efficient.

After much analysis, you have reduced the financial data related to purchasing, upgrading and/or operating the plants to the following expected cash flows - in millions.

Year CC BM

0 -260 -120

1 80 0

2 80 30

3 80 40

4 80 60

5 80 80

(1) Calculate the IRR for each plant: IRR: CC__16.32%__ IRR: BM 15.7786_

(2) Calculate the NPV for each plant using the WACC as the appropriate discount rate, assuming a new stock issue.

NPV: CC_140.00%_ NPV: BM_90.00_____

Other financial information regarding Valero as provided by the CFO

Long Term bonds $300,000,000

Preferred Stock $ 50,000,000 (250,000 shares outstanding)

Total Common Equity $150,000,000

Common Stock $150,000,000 (3,000,000 shares outstanding)

Retained Earnings $ -0-

Expected per share dividend, Common $8.10

Expected per share dividend, Preferred $12.00

Marginal Tax Rate 40%

Expected Growth Rate 8%

Flotation cost for new common stock 10%

Valero 8% coupon bonds, 15 years to maturity, currently sell for $676.88

Preferred Stock and Common Stock both selling at Book Value