Texaco discovers new oil field in Texas and needs to build an oil pipeline connecting...
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Accounting
Texaco discovers new oil field in Texas and needs to build an oil pipeline connecting the oilfield and its Galvaston refinery. Texaco has two options to finance the project
100% by company bond. The interest rate is estimated to be 12%
50% by company bond and 50% by common stock.
Assume Texaco is in 45% income tax bracket. Risk-free rate is 5%, Market rate of return is 12%, common stock of the Texaco has a beta value 1.20. Determine the MARR under each option
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