You have the following initial information on CMR Co. on which to base your calculations and discussion for questions 1) and 2): Current long-term and target debt-equity ratio (D:E) = 1:4 Corporate tax rate (TC) = 30% Expected Inflation = 1.75% Equity beta (E) = 1.6385 Debt beta (D) = 0.2055 Expected market premium (rM rF) = 6.00% Risk-free rate (rF) = 2.15%

1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate a potential investment in a new project. The proposed project requires an initial outlay of $7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cash flow of $575 million in perpetuity following its completion. It has the same business risk as CMR Co.s existing activities and will be funded using the firms current target D:E ratio. a) What is the nominal weighted-average cost of capital (WACC) for this project? (3 marks) b) As CFO, do you recommend investment in this project? Justify your answer (numerically). (2 marks)