You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow -100 1 - 10 +16 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.43. Assume that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 15%. a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) IRR % b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow -100 1 - 10 +16 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.43. Assume that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 15%. a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) IRR % b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 21P

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