Question

As an International Investor, it is important for you to read the latest financial and business news that is occurring around the world. After reading the article below, answer the questions that follow Business article : Capital costs rise on sustainability concerns An intensifying investor focus on sustainable investing and the climate emergency is impacting the oil and gas sector Investors are increasingly focused on the threat of global warming and the need to rapidly decarbonize the global economy, with up to $118tn of funds committed to making climate risk disclosures by 2020. And they are responding by divesting oil and gas holdings, or, at a minimum, fully integrating sustainability into their investment process, driving an incrementally negative view of the sector. Consequently, the sector's weighted average cost of capital (WACC) has risen, causing a valuation derating, reduced capital availability and low market liquidity .

Question one (1) After reading this article you have been requested to advice an investment group if they should or should not invest in a gas and oil business located in Nigeria, your opinion that you will render will be based on the WACC . Calculate the WACC and give your opinion using the information given below.

a) Vision oil and Gas Company has 10 million shares each with a value of $4.20, whose cost is 7.5%. It has $30 million of 5% bonds with a market value of 101.00 and an after-tax cost of 3.5%. It has a bank loan of $5 million whose after-tax cost is 3.2%. It also has 2 million 8% preference shares of $1 whose market price is $1.33 per share and whose cost is 6%.

(i)Calculate the WACC by hand not excel

(ii) Give your corporate opinion

Answer 1