Sinopec is a Chinese company that acquires a license for oil extraction in Russian Siberia. The cost of acquisition is $ 27 million.

Sinopec has debt-to-equity ratio of 1.5. Annual cash flow is estimated at $5 millions annually for the 8-years period. The liquidation of the equipment would derive $ 3 million. The interest rate is 12%, tax rate is 25%. The risk-free rate is 6%, unleveraged beta equals to 0,9; market premium is 7%.

a. Estimate the discount rate for an investment project

b. Calculate the NPV of an investment project

c. What investment decision should be made?

Answer rating: 100% (QA)

To estimate the discount rate for the investment project we can use the weighted average cost of cap... View the full answer