Company should accept or reject the drilling project

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Reference no: EM132064531

1. A financial analyst collected some data about a company, which has two sources of financing: debt (25%) and equity (the rest). The firm's bonds yield 7%, and the company's tax rate is 35%. The risk-free rate is 1.50%, the market risk premium is 5%, and the stock's beta is 0.8. Find the company's WACC.

2. There is an oil drilling project with an original cost of -20,000, subsequent profits of 10,000 (t=1); 15,000 (t=2); and the final environmental clean-up cost of -5,000 (t=3). Its WACC is 7%. Find project's MIRR and decide whether the company should accept or reject the drilling project.

Reference no: EM132064531

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