Intel is exploring a joint venture with Ford to develop computer chips to use in automobiles. Although Intel has traditionally used a cost of equity based on its beta of 1.50 and a cost of capital based on its debt ratio of 5%, it has collected the following information. The average beta for automobile component firms is 0.90, and the average debt/equity ratio across these firms is 40% The joint venture will be financed 70% with equity from Ford and Intel, and 30% with new debt raised at a market interest rate of 7.5%

Assume that the tax rate is 40%, the riskless rate is 7% and the market premium is 6%

1. Estimate the beta that Intel should use for this project.
2. Estimate the cost of capital (WACC) that Intel should use for this project